Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/224157
Authors: 
Gu, Chao
Monnet, Cyril
Nosal, Ed
Wright, Randall
Year of Publication: 
2019
Series/Report no.: 
Working Paper No. 19.04
Abstract: 
Are financial intermediaries inherently unstable? If so, why? What does this suggest about government intervention? To address these issues we analyze whether model economies with financial intermediation are particularly prone to multiple, cyclic, or stochastic equilibria. Four formalizations are considered: a dynamic version of Diamond-Dybvig banking incorporating reputational considerations; a model with delegated investment as in Diamond; one with bank liabilities serving as payment instruments similar to currency in Lagos-Wright; and one with Rubinstein-Wolinsky intermediaries in a decentralized asset market as in Duffi e et al. In each case we find, for different reasons, financial intermediation engenders instability in a precise sense.
Subjects: 
Banking
Financial Intermediation
Instability
Volatility
JEL: 
D02
E02
E44
G21
Document Type: 
Working Paper

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