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Sequential decisions in the Diamond-Dybvig banking model

  • Markus Kinateder

    ()

    (Departamento de Econom¡a, Edificio de Amigos, Universidad de Navarra)

  • Hubert Janos Kiss

    ()

    (Game Theory Research Group, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of SciencesAuthor-Name: Hubert J nos Kiss)

We study the Diamond-Dybvig model of financial intermediation (JPE, 1983) under the assumption that depositors have information about previous decisions. Depositors decide sequentially whether to withdraw their funds or continue holding them in the bank. If depositors observe the history of all previous decisions, we show that there are no bank runs in equilibrium independently of whether the realized type vector selected by nature is of perfect or imperfect information.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1345.

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Length: 45 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:has:discpr:1345
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  1. Martha A. Starr & Rasim Yilmaz, 2007. "Bank Runs in Emerging-Market Economies: Evidence from Turkey's Special Finance Houses," Southern Economic Journal, Southern Economic Association, vol. 73(4), pages 1112–1132, April.
  2. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  3. Ennis, Huberto M. & Keister, Todd, 2009. "Run equilibria in the Green-Lin model of financial intermediation," Journal of Economic Theory, Elsevier, vol. 144(5), pages 1996-2020, September.
  4. Gu, Chao, 2011. "Herding and bank runs," Journal of Economic Theory, Elsevier, vol. 146(1), pages 163-188, January.
  5. Wicker,Elmus, 2001. "The Banking Panics of the Great Depression," Cambridge Books, Cambridge University Press, number 9780521663465, September.
  6. Hubert Janos Kiss & Ismael Rodriguez‐Lara & Alfonso Rosa‐García, 2012. "On the Effects of Deposit Insurance and Observability on Bank Runs: An Experimental Study," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1651-1665, December.
  7. David Andolfatto & Ed Nosal & Neil Wallace, 2006. "The role of independence in the Green-Lin Diamond-Dybvig model," Working Paper 0615, Federal Reserve Bank of Cleveland.
  8. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
  9. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, March.
  10. James Peck & Karl Shell, 2003. "Equilibrium Bank Runs," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 103-123, February.
  11. Cormac O Grada & Morgan Kelly, 2000. "Market Contagion: Evidence from the Panics of 1854 and 1857," American Economic Review, American Economic Association, vol. 90(5), pages 1110-1124, December.
  12. Rajkamal Iyer & Manju Puri, 2012. "Understanding Bank Runs: The Importance of Depositor-Bank Relationships and Networks," American Economic Review, American Economic Association, vol. 102(4), pages 1414-45, June.
  13. Garratt, Rod & Keister, Todd, 2009. "Bank runs as coordination failures: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 300-317, August.
  14. Huberto M. Ennis & Todd Keister, 2003. "Economic growth, liquidity, and bank runs," Working Paper 03-01, Federal Reserve Bank of Richmond.
  15. Huberto M. Ennis & Todd Keister, 2010. "On the fundamental reasons for bank fragility," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 33-58.
  16. Schotter, Andrew & Yorulmazer, Tanju, 2009. "On the dynamics and severity of bank runs: An experimental study," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 217-241, April.
  17. Huberto M. Ennis & Todd Keister, 2007. "Bank runs and institutions : the perils of intervention," Working Paper 07-02, Federal Reserve Bank of Richmond.
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