Banking panics and policy responses

Huberto Ennis and Todd Keister

Journal of Monetary Economics, 2010, vol. 57, issue 4, 404-419

Abstract: When policy makers have limited commitment power, self-fulfilling bank runs can arise as an equilibrium phenomenon. We study how such banking panics unfold in a version of the Diamond and Dybvig (1983) model. A run in this setting is necessarily partial, with only some depositors participating. In addition, a run naturally occurs in waves, with each wave of withdrawals prompting a further response from policy makers. In this way, the interplay between the actions of depositors and the responses of policy makers shapes the course of a crisis.

Keywords: Bank; runs; Limited; commitment; Time; consistency; Suspension; of; convertibility (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (80)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:57:y:2010:i:4:p:404-419

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