Bank Runs Without Sunspots
AbstractThe literature on bank runs reduces all coordination mechanisms triggering attacks on banks to exogenous sunspots. We present a general equilibrium version of these models where the uncertainty faced by depositors is modeled explicitly, such that bank runs arise as optimal equilibrium outcomes corresponding to Bayesian coordination games played by rational agents before depositing. Differentials in information sets between the bank and its depositors lead to rational self-contained equilibrium runs. The coexistence of different beliefs in equilibrium jointly with the self-fulfilling nature of the attacks follow from Adam Smith's invisible hand principle. The runs obtained do not violate the revelation principle.
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Bibliographic InfoPaper provided by Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales in its series Working Papers del Instituto Complutense de Estudios Internacionales with number 02-10.
Length: 33 pages ISBN Number: 978-84-692-9959-3
Date of creation: 2010
Date of revision:
Postal: Instituto Complutense de Estudios Internacionales. Finca Mas Ferre Campus de Somosaguas 28223 Madrid
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-08 (All new papers)
- NEP-BAN-2010-05-08 (Banking)
- NEP-CBA-2010-05-08 (Central Banking)
- NEP-CTA-2010-05-08 (Contract Theory & Applications)
- NEP-FMK-2010-05-08 (Financial Markets)
- NEP-GTH-2010-05-08 (Game Theory)
- NEP-HPE-2010-05-08 (History & Philosophy of Economics)
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