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The Bank, the Bank-Run, and the Central Bank: The Impact of Early Deposit Withdrawals in a New Keynesian Framework

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  • Totzek, Alexander
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    Abstract

    Currently, private trust in commercial banks declines as a consequence of today´s financial crisis. As past crises, e.g. the Asian crisis, show, the loss of confidence in the financial sector typically causes private agents to withdraw their capital from financial institutions. Thus, the purpose of this paper is to implement the feature of early deposit withdrawal in a New Keynesian framework with commercial banks in order to analyze the implications of a loss of confidence. In addition, we present the optimal monetary policy to ensure a stabilized system.

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    File URL: http://econstor.eu/bitstream/10419/27675/1/EWP-2008-20.pdf
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    Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2008,20.

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    Date of creation: 2008
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    Handle: RePEc:zbw:cauewp:7468
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    Keywords: banks; financial crises; deposit withdrawal; optimal monetary policy;

    Find related papers by JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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    15. Stanhouse, Bryan & Stock, Duane, 2004. "The impact of loan prepayment risk and deposit withdrawal risk on the optimal intermediation margin," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 1825-1843, August.
    16. Stanhouse, Bryan & Ingram, Matthew, 2007. "A computational approach to the optimal structure of bank input prices," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 439-453, February.
    17. Ringbom, Staffan & Shy, Oz & Stenbacka, Rune, 2004. "Optimal liquidity management and bail-out policy in the banking industry," Journal of Banking & Finance, Elsevier, vol. 28(6), pages 1319-1335, June.
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