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Self-fulfilling runs and endogeneous liquidity creation

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dc.contributor.author Rivero Leiva, David
dc.contributor.author Rodríguez Mendizábal, Hugo
dc.date.accessioned 2018-04-26T10:13:23Z
dc.date.available 2018-04-26T10:13:23Z
dc.date.issued 2018-03
dc.identifier.uri http://hdl.handle.net/10230/34483
dc.description.abstract This 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 the self-fulfilling run depends 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.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;90
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.rights.uri https://creativecommons.org/licenses/by/4.0/
dc.title Self-fulfilling runs and endogeneous liquidity creation
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword Bank runs
dc.subject.keyword Inside money
dc.subject.keyword Risk-sharing
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess


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