English, Article, Journal or magazine article edition: Economic growth, liquidity, and bank runs Huberto M. Ennis; Todd Keister

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Bookmark: http://trove.nla.gov.au/version/74853
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Economic growth, liquidity, and bank runs
Author
  • Huberto M. Ennis
  • Todd Keister
Physical Description
  • preprint
Notes
  • We construct an endogenous growth model in which bank runs occur with positive probability in equilibrium. In this setting, a bank run has a permanent effect on the levels of the capital stock and of output. In addition, the possibility of a run changes the portfolio choices of depositors and of banks, and thereby affects the long-run growth rate. These facts imply that both the occurrence of a run and the mere possibility of runs in a given period have a large impact on all future periods. A bank run in our model is triggered by sunspots, and we consider two different equilibrium selection rules. In the first, a run occurs with a fixed, exogenous probability, while in the second the probability of a run is influenced by banks' portfolio choices. We show that when the choices of an individual bank affect the probability of a run on that bank, the economy both grows faster and experiences fewer runs.
  • Banks and banking ; Equilibrium (Economics)
  • RePEc:fip:fedrwp:03-01
Language
  • English
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