Heterogeneous fragility, systematic panic and optimal transparency

Wang Bo and Zheng Suli

Economics Letters, 2020, vol. 191, issue C

Abstract: In this study, we provide a model of systematic panic among financial institutions with heterogeneous fragility. During a systematic panic, institutions characterized by a higher degree of fragility are more aggressive to withdrawals, and such aggressiveness increases linearly with their fragility. We derive an analytical solution for this linear relationship using a global game framework, and demonstrate that transparency does not always endanger the regime; When the outside option is large, transparency increases the strength of the regime.

Keywords: Systematic panic; Financial fragility; Transparency (search for similar items in EconPapers)
JEL-codes: D8 G2 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:191:y:2020:i:c:s0165176520300859

DOI: 10.1016/j.econlet.2020.109096

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