Year: 2001
Type: article
Abstract: This paper provides a new rationalization for deposit insurance and systemic disintermediations. I consider an environment in which borrowers face no penalty for failing to repay obligations except the loss of their collateral. I assume that this collateral has aggregate risk. For a subset of the exogenous parameters, I demonstrate that an optimal arrangement features deposit insurance. For a strictly smaller set of parameters, it is optimal in some states of the world to have systemic distintermediations and concomitant falls in real output.
Source: Topics in Macroeconomics
Author: Narayana Rao Kocherlakota, 1963-
Institutions: University of Minnesota, Federal Reserve Bank of Minneapolis
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2159260643