Central banks’ liquidity injections may amplify bank runs, paper argues
ESRB paper looks at 2008 US crisis using simple model of bank runs
When central banks pump liquidity into markets during financial crises, they may cause an unintended fall in deposits and a reduction in the velocity of money, a working paper published by the European Systemic Risk Board (ESRB) argues.
In Flight to liquidity and systemic bank runs, Roberto Robatto presents a simple general equilibrium model of bank runs in order to study monetary injections during financial crises. He then applies this model to data from the Great Depression, and to the global
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