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Banks and Liquidity Creation: A Simple Exposition of the Diamond-Dybvig Model: A Reprint from “Economic Quarterly”
Uses narrative & numerical examples to exposit the

Our Price: $15.00
By Douglas W. Diamond (au)
Year: 2007
Pages: 12
Binding Paperback

Product Code: 142231734X

Uses narrative & numerical examples to exposit the ideas in Diamond & Dybvig (1983) & some recent extensions of their model. Banks create demand deposits to provide investors with liquid assets. Demand deposits work very well when investors forecast that banks will survive, but bank runs can cause severe damage if investors lose faith in banks. There is scope for banks to write more refined contracts, such as deposits with suspension of convertibility of deposits to cash. In addition, there may be a role for government policies that eliminate self-fulfilling runs on banks. Charts & tables.

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