I have a question regarding the Diamond & Dybvig (1983)
model about Bank runs:
- Urgent Answer Required I Have A Question Regarding The Diamond Dybvig 1983 Model About Bank Runs 1 (137.36 KiB) Viewed 73 times
URGENT ANSWER REQUIRED!!! I have a question regarding the Diamond & Dybvig (1983) model about Bank runs:
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URGENT ANSWER REQUIRED!!! I have a question regarding the Diamond & Dybvig (1983) model about Bank runs:
URGENT ANSWER REQUIRED!!!
I have a question regarding the Diamond & Dybvig (1983)
model about Bank runs:
= = = = Consider a Diamond & Dybvig (1983) economy similar to the one discussed in lecture. There are three period, with time denoted by te {0, 1, 2} and a continuum of agents ie [0, 1]. Each agent i has a unit endowment wi = 1 in period t = 0. Agents can either , store their endowment or can invest in a long-term asset that returns R > 1 in t = 2 but only l< 1 if liquidated in t = 1. Assume that agents have a quadratic period utility function so that u(I) = VI and that agents discount period t = 2 consumption at rate p<1 so that their utility function is given by: U(C1,09) = {va with probability de (0,1) Tevca with probability 1 - 1 Assume furthermore that pR > 1. 1. Write down agents' expected utility from consumption and the feasibility constraints for this economy. 2. Write down the er ante constrained optimization problem of a bank seeking to maximize agents' utility by choosing consumption levels offered by a demand deposit contract (dı, d2). Compute the first-order condition that characterizes the efficient allocation, and derive the optimal deposit contract (di, dạ). 3. Assume that the bank cannot condition payments on agents' (unobservable) types and that agents can withdraw their deposits in either period. Are bank runs possible in this economy? If so, for what parameter values? 4. Assume now that pR <1. Can a bank subject to the incentive constraint d2 > di implement the efficient allocation? What contract does the bank offer? 5. For what parameter values are bank runs possible if PR <1?
I have a question regarding the Diamond & Dybvig (1983)
model about Bank runs:
= = = = Consider a Diamond & Dybvig (1983) economy similar to the one discussed in lecture. There are three period, with time denoted by te {0, 1, 2} and a continuum of agents ie [0, 1]. Each agent i has a unit endowment wi = 1 in period t = 0. Agents can either , store their endowment or can invest in a long-term asset that returns R > 1 in t = 2 but only l< 1 if liquidated in t = 1. Assume that agents have a quadratic period utility function so that u(I) = VI and that agents discount period t = 2 consumption at rate p<1 so that their utility function is given by: U(C1,09) = {va with probability de (0,1) Tevca with probability 1 - 1 Assume furthermore that pR > 1. 1. Write down agents' expected utility from consumption and the feasibility constraints for this economy. 2. Write down the er ante constrained optimization problem of a bank seeking to maximize agents' utility by choosing consumption levels offered by a demand deposit contract (dı, d2). Compute the first-order condition that characterizes the efficient allocation, and derive the optimal deposit contract (di, dạ). 3. Assume that the bank cannot condition payments on agents' (unobservable) types and that agents can withdraw their deposits in either period. Are bank runs possible in this economy? If so, for what parameter values? 4. Assume now that pR <1. Can a bank subject to the incentive constraint d2 > di implement the efficient allocation? What contract does the bank offer? 5. For what parameter values are bank runs possible if PR <1?