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Full-Text Articles in Economic History
Transmission Of Banking Crises Using A Proximity Based Learning Model, Steven Yee
Senior Theses and Projects
In financial markets, banks play a key role in transforming illiquid assets into more liquid assets. However, their ability to spread the risk of liquidity shocks over a body of agents generates a positive probability for non-efficient bank runs. Building off of the classic Diamond-Dybvig framework, this paper uses an agent based model to observe the two equilibria, efficient risk sharing and the bank run. While previous literature has looked at under what conditions could a bank run equilibrium occur, this proximity based learning model (PBLM) focuses on the development of a panic driven bank run in light of limited ...