Bank Fragility and International Capital Mobility
The paper presents a model of a small open economy with a fragile banking sector and imperfect international capital mobility. In this model, increased international integration of the market for bank deposits makes bank runs more likely, resulting in a welfare loss for the business sector. Bank depositors may gain or lose depending on the parameters. When depositors gain, whether the gains exceed the losses to the business sector depends on the size of the holdings of foreign assets relative to the deadweight costs of bank runs. Thus, limited international financial integration may not be desirable. Copyright 2001 by Blackwell Publishing Ltd.
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Volume (Year): 9 (2001)
Issue (Month): 4 (November)
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