The Diamond-Dybvig Model of Bank Runs 1. We know from problem Diamond’s article (2007, p. 194) that are the socially optimal deposit returns when f=1/4. Suppose that, even though the true fraction of agents with liquidity needs in period 1 is ¼, agents think (incorrectly) that the proportion is f=.60. Will there be a run?
The Diamond-Dybvig Model of Bank Runs 1. We know from problem Diamond’s article (2007, p. 194) that are the socially optimal deposit returns when f=1/4. Suppose that, even though the true fraction of agents with liquidity needs in period 1 is ¼, agents think (incorrectly) that the proportion is f=.60. Will there be a run?
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter28: Monetary Policy And Bank Regulation
Section: Chapter Questions
Problem 34CTQ: Explain what would happen if banks were notified they had to increase their required reserves by one...
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The Diamond-Dybvig Model of Bank Runs
1. We know from problem Diamond’s article (2007, p. 194) that are the
socially optimal deposit returns when f=1/4. Suppose that, even though the true fraction of
agents with liquidity needs in period 1 is ¼, agents think (incorrectly) that the proportion is
f=.60. Will there be a run?
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