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Optimal liquidity provision through a demand deposit scheme: The Jacklin critique revisited

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  • Alexander Zimper

Abstract

We derive conditions such that optimal liquidity provisions through a demand deposit scheme can be sustainably implemented in a subgame perfect Nash equilibrium under the assumption that renegade investors have free access to ex-post asset markets. As our qualitative main finding we demonstrate that such sustainability is more likely for poor than for rich”scheme participants in terms of future income. By establishing sustainability for low future income populations, our formal analysis therefore offers an important qualification of Jacklin's(1987) influential claim that an optimal demand deposit scheme is not sustainable whenever there exists the possibility of an ex-post asset market.

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Bibliographic Info

Paper provided by Economic Research Southern Africa in its series Working Papers with number 208.

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Length: 25 pages
Date of creation: 2011
Date of revision:
Handle: RePEc:rza:wpaper:208

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Keywords: Jacklin critique; Â…nancial intermediation; asset markets;

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  1. Ernst-Ludwig VON THADDEN, 1996. "The Term-Structure of Investment and the Banks' Insurance Function," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9606, Université de Lausanne, Faculté des HEC, DEEP.
  2. Ernst-Ludwig VON THADDEN, 1996. "Optimal Liquidity Provision and Dynamic Incentive Compatibility," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9604, Université de Lausanne, Faculté des HEC, DEEP.
  3. von Thadden, Ernst-Ludwig, 1999. "Liquidity creation through banks and markets: Multiple insurance and limited market access," European Economic Review, Elsevier, vol. 43(4-6), pages 991-1006, April.
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Cited by:
  1. Alexander Zimper, 2013. "Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies," Working Papers 201334, University of Pretoria, Department of Economics.

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