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Discussion Paper Details

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Title: Money Runs

Author(s): Jason Roderick Donaldson and Giorgia Piacentino

Publication Date: August 2019

Keyword(s): Banking, demandable debt, financial fragility and Private money

Programme Area(s): Financial Economics and Monetary Economics and Fluctuations

Abstract: We develop a model in which, as in practice, bank debt is both a financial security used to raise funds and a kind of money used to facilitate trade. This dual role of bank debt provides a new rationale for why banks do what they do. In the model, banks endogenously perform the essential functions of real-world banks: they transform liquidity, transform maturity, pool assets, and have dispersed depositors. Moreover, they make their debt redeemable on demand. Thus, they are endogenously fragile. We show novel effects of narrow banking, suspension of convertibility, and some other policies.

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Bibliographic Reference

Donaldson, J and Piacentino, G. 2019. 'Money Runs'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13955