Bank Runs in Open Economies and the International Transmission of Panics

19 Pages Posted: 1 Sep 2001 Last revised: 23 Jul 2010

See all articles by Peter M. Garber

Peter M. Garber

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Vittorio Grilli

Independent; National Bureau of Economic Research (NBER)

Date Written: November 1988

Abstract

In this paper, we extend the bank run literature to an open economy model. We show that a foreign banking system, by raising deposit rates in the presence of a domestic banking panic, may generate sufficient liquid resources to acquire assets sold by the domestic banking system at bargain prices. In this case, foreign depositors will benefit from the domestic panic. We also show that our simple model is able to generate the spreading of panics. Perhaps not surprisingly, the crucial element in determining the propagation of financial crises is the effect of interest rates on savings decisions.

Suggested Citation

Garber, Peter M. and Grilli, Vittorio, Bank Runs in Open Economies and the International Transmission of Panics (November 1988). NBER Working Paper No. w2764. Available at SSRN: https://ssrn.com/abstract=277295

Peter M. Garber (Contact Author)

Brown University - Department of Economics ( email )

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Providence, RI 02912
United States
401-863-2145 (Phone)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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Vittorio Grilli

Independent

Ministero del Tesoro
Direzione Generale del Tesoro Capo del Servizio I via XX Settembre 97
Roma 00187

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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