Contagious Bank Failures in a Free Banking System: A Persistent Misunderstanding

Mathieu Bédard
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Mathieu Bédard: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: A recurring citation in systemic risk literature reviews (P. Aghion, P. Bolton, and M. Dewatripont. 2000. "Contagious Bank Failures in a Free Banking System." European Economic Review 44:713-18) offers a model where what they describe as a free banking system is vulnerable to contagious bank runs through clearinghouse loans. The paper ignores key contributions to both free banking and financial history literature, such that the paper is of little relevance to the understanding of the stability of both free banking systems and clearinghouse arrangements. Our criticism concentrates on the institutions of banking absent or misrepresented. It is argued that their conclusions are inapplicable to free banking.

Keywords: Economie; quantitative (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

Published in Journal des économistes et des études humaines, 2014, 20 (1), pp.8. ⟨10.1515/jeeh-2014-0005⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01463106

DOI: 10.1515/jeeh-2014-0005

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