Private Money and Bank Runs
AbstractThis paper studies bank runs in a model with coexistence of fiat money and private money. When fiat money is the only medium of exchange, there exist a bank run equilibrium and an equilibrium that achieves the optimal risk sharing. In contrast, when private money is also a medium of exchange, there exists a unique equilibrium where no one demands early withdrawals of fiat money and agents in need of liquidity only use private money to finance consumption. The unique equilibrium achieves the first-best outcome and eliminates bank runs without having resort to any government intervention.
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Bibliographic InfoPaper provided by Queen's University, Department of Economics in its series Working Papers with number 1145.
Length: 24 pages
Date of creation: Dec 2007
Date of revision:
private money; fiat money; bank runs;
Other versions of this item:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- G2 - Financial Economics - - Financial Institutions and Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-08 (All new papers)
- NEP-BAN-2007-12-08 (Banking)
- NEP-CBA-2007-12-08 (Central Banking)
- NEP-DGE-2007-12-08 (Dynamic General Equilibrium)
- NEP-MAC-2007-12-08 (Macroeconomics)
- NEP-MON-2007-12-08 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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