Banking Panics and Policy Responses

Posted: 9 Mar 2012

See all articles by Huberto M. Ennis

Huberto M. Ennis

Federal Reserve Banks - Federal Reserve Bank of Richmond

Todd Keister

Rutgers, The State University of New Jersey - Department of Economics

Date Written: December 24, 2009

Abstract

When policy makers have limited commitment power, self-fulfilling bank runs can arise as an equilibrium phenomenon. We study how such banking panics unfold in a version of the Diamond and Dybvig (1983) model. A run in this setting is necessarily partial, with only some depositors participating. In addition, a run naturally occurs in waves, with each wave of withdrawals prompting a further response from policy makers. In this way, the interplay between the actions of depositors and the responses of policy makers shapes the course of a crisis.

Keywords: Bank runs, Limited commitment, Time consistency, Suspension of convertibility

JEL Classification: G21, E61, G28

Suggested Citation

Ennis, Huberto M. and Keister, Todd, Banking Panics and Policy Responses (December 24, 2009). Journal of Monetary Economics, Vol. 57, No. 4, 2010. Available at SSRN: https://ssrn.com/abstract=2019035

Huberto M. Ennis (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

Todd Keister

Rutgers, The State University of New Jersey - Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States

HOME PAGE: http://econweb.rutgers.edu/tkeister

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