TY - JOUR
T1 - Microeconomic foundation of lender of last resort from the viewpoint of payments
AU - Maeda, Yasuo
AU - Sakai, Yoshikiyo
PY - 2008/6/1
Y1 - 2008/6/1
N2 - We construct a model to clarify the mechanism by which the lender of last resort (LLR) can prevent bank runs. In our model, a bank has both the function of facilitating payments in which inside money is settled using outside money and the function of financial intermediation using a deposit contract. The deposit contract might lead to a bank run, and might even contribute to an efficient allocation. Therefore, to consider the liquidity supply by the LLR, we introduce the deposit contract as a factor of instability in the banking model. We show that the LLR can assist in the recovery of both the efficiency and stability of the financial system.
AB - We construct a model to clarify the mechanism by which the lender of last resort (LLR) can prevent bank runs. In our model, a bank has both the function of facilitating payments in which inside money is settled using outside money and the function of financial intermediation using a deposit contract. The deposit contract might lead to a bank run, and might even contribute to an efficient allocation. Therefore, to consider the liquidity supply by the LLR, we introduce the deposit contract as a factor of instability in the banking model. We show that the LLR can assist in the recovery of both the efficiency and stability of the financial system.
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U2 - 10.1111/j.1468-5876.2008.00404.x
DO - 10.1111/j.1468-5876.2008.00404.x
M3 - Article
AN - SCOPUS:42549170553
SN - 1352-4739
VL - 59
SP - 178
EP - 193
JO - Japanese Economic Review
JF - Japanese Economic Review
IS - 2
ER -