A bank panic model with a bond market

Yasuo Maeda, Yoshikiyo Sakai

Research output: Contribution to journalArticle

Abstract

We have constructed a model of bank failure with monetary assets (bonds), adopting the overlapping-generations model. In it, monetary assets play a role in dispersing the credit crunch from a single bank run into a nationwide bank panic. As established by Diamond and Dybvig (1983), a single bank run is explained by a model without any monetary assets. In our model, however, the bond market is introduced to describe the process in which a bank run spreads. As a result, our model describes a general phenomenon - credit market failure - rather than a single bank run.

Original languageEnglish
Pages (from-to)440-453
Number of pages14
JournalJapanese Economic Review
Volume49
Issue number4
DOIs
Publication statusPublished - 1998 Dec
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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