Liquidity Provision and Banking Crises with Heterogeneous Agents
Matías Fontenla ()
No 976, 2007 Meeting Papers from Society for Economic Dynamics
Incentive compatibility constraints that produce contracts where short-term funds choose not to deposit will prevent banking crises, but at the cost of losing the insurance function of banks. Restricting short-term deposits may not be optimal at all times, since the cost of doing so may be greater than the expected loss in allowing crises to occur with positive probability.
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Journal Article: LIQUIDITY PROVISION AND BANKING CRISES WITH HETEROGENEOUS AGENTS (2009)
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