Bank Deposit Contracts Versus Financial Market Participation in Emerging Economies
The financial sector of emerging economies in Africa is characterized by a non-competitive banking sector which dominates any direct participation of agents in asset markets. Based on a variant of Diamond and Dybvig's (1983) model of financial inter-mediation, we formally explain both stylized facts through market inexperienceÂ”of agents in emerging economies. While experienced agents correctly predict future market clearing equilibrium prices, inexperienced agents are ignorant about future market equilibria. As a consequence, a monopolistic banking sector can exploit these agents because their only outside option is an autarkic investment project.
|Date of creation:||2013|
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- Carmen M. Reinhart & Ioannis Tokatlidis, 2003.
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- Zimper Alexander, 2006. "Assessing the Likelihood of Panic-Based Bank Runs," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-19, December.
- Eichberger, Jurgen & Harper, Ian R., 1997. "Financial Economics," OUP Catalogue, Oxford University Press, number 9780198775409, April. Full references (including those not matched with items on IDEAS)
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