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Banking crises in monetary economies

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  • Janet Hua Jiang

Abstract

. This paper analyzes the effect of inflation on banking crises in a model in which money and banks play essential roles. The model's equilibrium replicates some key features of actual banking crises, namely, the partial suspension of payments and the desire to hold cash even in the absence of pressing liquidity needs. When banks have access to a stable foreign currency, inflation has a threshold effect on banking crises: higher inflation reduces the likelihood of crises when inflation is below the threshold; the reverse happens when inflation exceeds the threshold. This result appears to be broadly consistent with available evidence. Ce mémoire analyse les effets de l'inflation sur les crises bancaires dans un modèle où monnaie et banques jouent des rôles essentiels. L'équilibre du modèle prend en compte certains aspects clés des crises bancaires réelles: suspension partielle des paiements, désir de détenir de la monnaie liquide měme quand on n'en a pas un besoin pressant. Quand les banques ont accès à une devise étrangère stable, l'inflation a un effet de seuil sur les crises bancaires: une forte inflation réduit la probabilité de crises quand l'inflation est sous un certain seuil, et l'inverse se produit quand l'inflation excède ce seuil. Les résultats paraissent s'arrimer aux résultats observés.

Suggested Citation

  • Janet Hua Jiang, 2008. "Banking crises in monetary economies," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(1), pages 80-104, February.
  • Handle: RePEc:wly:canjec:v:41:y:2008:i:1:p:80-104
    DOI: 10.1111/j.1365-2966.2008.00456.x
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    Cited by:

    1. Matsuoka, Tarishi, 2012. "Imperfect interbank markets and the lender of last resort," Journal of Economic Dynamics and Control, Elsevier, vol. 36(11), pages 1673-1687.
    2. Tarishi Matsuoka & Makoto Watanabe, 2017. "Banking Panics and Liquidity in a Monetary Economy," CESifo Working Paper Series 6722, CESifo.
    3. Fernando Martin & Aleksander Berentsen & David Andolfatto, 2016. "Financial Fragility in Monetary Economies," 2016 Meeting Papers 1626, Society for Economic Dynamics.
    4. Matsuoka, Tarishi & Watanabe, Makoto, 2019. "Banking crises and liquidity in a monetary economy," Journal of Economic Dynamics and Control, Elsevier, vol. 108(C).

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