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The Bank, the Bank-Run, and the Central Bank: The Impact of Early Deposit Withdrawals in a New Keynesian Framework

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  • Totzek, Alexander
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    Abstract

    Currently, private trust in commercial banks declines as a consequence of today´s financial crisis. As past crises, e.g. the Asian crisis, show, the loss of confidence in the financial sector typically causes private agents to withdraw their capital from financial institutions. Thus, the purpose of this paper is to implement the feature of early deposit withdrawal in a New Keynesian framework with commercial banks in order to analyze the implications of a loss of confidence. In addition, we present the optimal monetary policy to ensure a stabilized system. --

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    File URL: http://econstor.eu/bitstream/10419/27675/1/EWP-2008-20.pdf
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    Bibliographic Info

    Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,20.

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    Date of creation: 2008
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    Handle: RePEc:zbw:cauewp:7468

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    Keywords: banks; financial crises; deposit withdrawal; optimal monetary policy;

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    9. Gilkeson, James H. & Porter, Gary E. & Smith, Stanley D., 2000. "The impact of the early withdrawal option on time deposit pricing," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 40(1), pages 107-120.
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    13. James Gilkeson & John List & Craig Ruff, 1999. "Evidence of Early Withdrawal in Time Deposit Portfolios," Journal of Financial Services Research, Springer, Springer, vol. 15(2), pages 103-122, March.
    14. Collard, Fabrice & Dellas, Harris, 2005. "Poole in the New Keynesian model," European Economic Review, Elsevier, Elsevier, vol. 49(4), pages 887-907, May.
    15. Stanhouse, Bryan & Ingram, Matthew, 2007. "A computational approach to the optimal structure of bank input prices," Journal of Banking & Finance, Elsevier, Elsevier, vol. 31(2), pages 439-453, February.
    16. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(2), pages 199-216, March.
    17. Stanhouse, Bryan & Stock, Duane, 2004. "The impact of loan prepayment risk and deposit withdrawal risk on the optimal intermediation margin," Journal of Banking & Finance, Elsevier, Elsevier, vol. 28(8), pages 1825-1843, August.
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