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

  • Totzek, Alexander
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    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: https://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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    1. Svensson, Lars E O, 1998. "Inflation Targeting as a Monetary Policy Rule," CEPR Discussion Papers 1998, C.E.P.R. Discussion Papers.
    2. 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.
    3. Wollmershäuser, Timo & Mayer, Eric & Hülsewig, Oliver, 2006. "Bank Behavior and the Cost Channel of Monetary Transmission," W.E.P. - Würzburg Economic Papers 71, University of Würzburg, Chair for Monetary Policy and International Economics.
    4. Carletti, Elena & Hartmann, Philipp & Spagnolo, Giancarlo, 2004. "Bank Mergers, Competition and Liquidity," CEPR Discussion Papers 4260, C.E.P.R. Discussion Papers.
    5. Kahn, Charles M. & Santos, Joao A.C., 2005. "Allocating bank regulatory powers: Lender of last resort, deposit insurance and supervision," European Economic Review, Elsevier, vol. 49(8), pages 2107-2136, November.
    6. Steffen Henzel & Oliver Hülsewig & Eric Mayer & Timo Wollmershäuser, 2007. "The Price Puzzle Revisited: Can the Cost Channel Explain a Rise in Inflation after a Monetary Policy Shock?," CESifo Working Paper Series 2039, CESifo Group Munich.
    7. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
    8. Xavier Freixas & Bruno Parigi & Jean Charles Rochet, 1998. "Systemic risk, interbank relations and liquidity provision by the Central Bank," Economics Working Papers 440, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 1999.
    9. Marvin Goodfriend & Bennett T. McCallum, 2007. "Banking and Interest Rates in Monetary Policy Analysis: A Quantitative Exploration," NBER Working Papers 13207, National Bureau of Economic Research, Inc.
    10. Collard, Fabrice & Dellas, Harris, 2003. "Poole in the New Keynesian Model," CEPR Discussion Papers 4083, C.E.P.R. Discussion Papers.
    11. James Gilkeson & John List & Craig Ruff, 1999. "Evidence of Early Withdrawal in Time Deposit Portfolios," Journal of Financial Services Research, Springer;Western Finance Association, vol. 15(2), pages 103-122, March.
    12. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
    13. Michael Woodford, 2000. "Pitfalls of Forward-Looking Monetary Policy," American Economic Review, American Economic Association, vol. 90(2), pages 100-104, May.
    14. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 517-531.
    15. Gilkeson, James H. & Porter, Gary E. & Smith, Stanley D., 2000. "The impact of the early withdrawal option on time deposit pricing," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 107-120.
    16. 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.
    17. Ravenna, Federico & Walsh, Carl E., 2006. "Optimal monetary policy with the cost channel," Journal of Monetary Economics, Elsevier, vol. 53(2), pages 199-216, March.
    18. 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.
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