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Title

Self-fulfilling runs and endogenous liquidity creation

AuthorsRivero Leiva, David; Rodríguez Mendizábal, Hugo CSIC ORCID
KeywordsBank runs
Inside money
Risk-sharing
Issue DateDec-2019
PublisherElsevier BV
CitationJournal of Financial Stability 45: 100704 (2019)
AbstractThis paper incorporates endogenous money creation into the liquidity mismatch problem of Diamond and Dybvig (1983). We characterize a nominal economy where demandable deposits are created through lending. Depositors use sight deposits to buy consumption goods and the banks manage reserves to clear payments and to offset liquidity risk. We show that deposit contracts are suboptimal in terms of liquidity risk-sharing. We also observe that self-fulfilling runs depend on the refinancing rate of the central bank. Our analysis emphasizes the importance of effective lender of last resort policies to prevent expectational banking panics.
Publisher version (URL)http://dx.doi.org/10.1016/j.jfs.2019.100704
URIhttp://hdl.handle.net/10261/201959
DOI10.1016/j.jfs.2019.100704
Identifiersdoi: 10.1016/j.jfs.2019.100704
issn: 1572-3089
Appears in Collections:(IAE) Artículos

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