Bank runs without self-fulfilling prophecies
This paper proposes that bank runs are unique equilibrium outcomes instead of self-fulfilling prophecies. By assuming that depositors make their withdrawal decisions sequentially, the model provides an equilibrium-selection mechanism in the economy. A bank run would occur if and only if depositors perceive a low return on bank assets. Furthermore, a panic situation arises only when the market information is imperfect. A two-stage variant of the model shows that banks would deliberately offer a demand-deposit contract that is susceptive to bank runs.
|Date of creation:||Dec 2001|
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- Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003.
"Equilibrium selection in global games with strategic complementarities,"
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- David M. Frankel & Stephen Morris & Ady Pauzner, 2001. "Equilibrium Selection in Global Games with Strategic Complementarities," Cowles Foundation Discussion Papers 1336, Cowles Foundation for Research in Economics, Yale University.
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"The twin crises: The causes of banking and balance of payments problems,"
14081, University Library of Munich, Germany.
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"Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos
[The twin crises: Te causes of banking and balance of payments problems]," MPRA Paper 13842, University Library of Munich, Germany.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
- Peck, James & Shell, Karl, 2001.
"Equilibrium Bank Runs,"
01-10r, Cornell University, Center for Analytic Economics.
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"On crises, contagion, and confusion,"
Journal of International Economics,
Elsevier, vol. 51(1), pages 145-168, June.
- David Backus & Silverio Foresi & Liuren Wu, 2002. "Contagion in Financial Markets," Finance 0207009, EconWPA.
- Curtis R. Taylor & Thomas D. Jeitschko, 2001. "Local Discouragement and Global Collapse: A Theory of Coordination Avalanches," American Economic Review, American Economic Association, vol. 91(1), pages 208-224, March.
- Jianbo Zhang, 1997. "Strategic Delay and the Onset of Investment Cascades," RAND Journal of Economics, The RAND Corporation, vol. 28(1), pages 188-205, Spring.
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