Search Results

Showing results 1 to 10 of approximately 23.

(refine search)
SORT BY: PREVIOUS / NEXT
Author:Keister, Todd 

Working Paper
Aggregate demand management with multiple equilibria

We study optimal government policy in an economy where (i) search frictions create a coordination problem and generate multiple Pareto-ranked equilibria and (ii). The government finances the provision of a public good by taxing trade. The government must choose the tax rate before it knows which equilibrium will obtain, and therefore an important part of the problem is determining how the policy will affect the equilibrium selection process. We show that when the equilibrium selection rule is based on the concept of risk dominance, higher tax rates make coordination on the Pareto-superior ...
Working Paper , Paper 03-04

Working Paper
Bank runs and investment decisions revisited

We examine how the possibility of a bank run affects the deposit contract offered and the investment decisions made by a competitive bank. Cooper and Ross (1998) have shown that when the probability of a run is small, the bank will offer a contract that admits a bank-run equilibrium. We show that, in this case, the bank will chose to hold an amount of liquid reserves exactly equal to what withdrawal demand will be if a run does not occur. In other words, precautionary or "excess" liquidity will not be held. This result allows us to determine how the possibility of a bank run affects the ...
Working Paper , Paper 04-03

Working Paper
Optimal policy with probabilistic equilibrium selection

This paper introduces an approach to the study of optimal government policy in economies characterized by a coordination problem and multiple equilibria. Such models are often criticized as not being useful for policy analysis because they fail to assign a unique prediction to each possible policy choice. We employ a selection mechanism that assigns, ex ante, a probability to each equilibrium indicating how likely it is to obtain. With this, the optimal policy is well defined. We show how such a mechanism can be derived as the natural result of an adaptive learning process. This approach ...
Working Paper , Paper 01-03

Report
Expectations and contagion in self-fulfilling currency attacks

This paper presents a model in which currency crises can spread across countries as a result of the self-fulfilling beliefs of market participants. An incomplete-information approach is used to overcome many undesirable features of existing multiple-equilibrium explanations of contagion. If speculators expect contagion across markets to occur, they have an incentive to trade in both currency markets to take advantage of this correlation. These actions, in turn, link the two markets in such a way that a sharp devaluation of one currency will be propagated to the other market, fulfilling the ...
Staff Reports , Paper 249

Journal Article
Why are banks holding so many excess reserves?

The buildup of reserves in the U.S. banking system during the financial crisis has fueled concerns that the Federal Reserve's policies may have failed to stimulate the flow of credit in the economy: banks, it appears, are amassing funds rather than lending them out. However, a careful examination of the balance sheet effects of central bank actions shows that the high level of reserves is simply a by-product of the Fed's new lending facilities and asset purchase programs. The total quantity of reserves in the banking system reflects the scale of the Fed's policy initiatives, but conveys no ...
Current Issues in Economics and Finance , Volume 15 , Issue Dec

Report
Floor systems and the Friedman rule: the fiscal arithmetic of open market operations

In a floor system of monetary policy implementation, the central bank remunerates bank reserves at or near the market rate of interest. Some observers have expressed concern that operating such a system will have adverse fiscal consequences for the public sector and may even require the government to subsidize the central bank. We show that this is not the case. Using the monetary general equilibrium model of Berentsen et al. (2014), we show how a central bank that supplies reserves through open market operations can always generate non-negative net income, even when using a floor system to ...
Staff Reports , Paper 754

Journal Article
Dollarization as a monetary arrangement for emerging market economies

Official dollarization refers to the adoption of the U.S. dollar as legal tender in place of the national currency. Some Latin American countries have recently dollarized, and others have seriously considered dollarization. This article discusses the reasons behind the surge of interest in dollarization and provides a review of the new academic literature on the topic. It discusses in detail some of the factors that are commonly considered to be the important costs and benefits of dollarizing. The paper also provides an analysis of the existing liability dollarization in several countries and ...
Review , Volume 83 , Issue Nov.

Journal Article
Divorcing money from monetary policy

Many central banks implement monetary policy in a way that maintains a tight link between the stock of money and the short-term interest rate. In particular, their implementation procedures require that the supply of reserve balances be set precisely in order to implement the target interest rate. Because bank reserves play other key roles in the economy, this link can create tensions with other important objectives, especially in times of acute market stress. This article considers an alternative approach to monetary policy implementation -- known as a "floor system" -- that can reduce ...
Economic Policy Review , Volume 14 , Issue Sep , Pages 41-56

Report
Bailouts and financial fragility

How does the belief that policymakers will bail out investors in the event of a crisis affect the allocation of resources and the stability of the financial system? I study this question in a model of financial intermediation with limited commitment. When a crisis occurs, the efficient policy response is to use public resources to augment the private consumption of those investors facing losses. The anticipation of such a ?bailout? distorts ex ante incentives, leading intermediaries to choose arrangements with excessive illiquidity and thereby increasing financial fragility. Prohibiting ...
Staff Reports , Paper 473

Working Paper
Optimal Banking Contracts and Financial Fragility

We study a finite-depositor version of the Diamond-Dybvig model of financial intermediation in which the bank and all depositors observe withdrawals as they occur. We derive the constrained efficient allocation of resources in closed form and show that this allocation provides liquidity insurance to depositors. The contractual arrangement that decentralizes this allocation resembles a standard bank deposit in that it has a demand able debt-like structure. When withdrawals are unusually high, however,depositors who withdraw relatively late experience significant losses. This contractual ...
Working Paper , Paper 15-6

FILTER BY year

FILTER BY Content Type

FILTER BY Jel Classification

E42 3 items

G28 3 items

E52 2 items

E58 2 items

G01 2 items

G21 2 items

show more (7)

FILTER BY Keywords

PREVIOUS / NEXT