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Risky Collateral and Deposit Insurance
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Narayana R Kocherlakota
Published/Copyright:
February 27, 2001
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.
Published Online: 2001-02-27
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Frontiers Article
- Unstable Relationships
- Advances Articles
- Another Example in which Lump-sum Money Creation is Beneficial
- Risky Collateral and Deposit Insurance
- International Currency
- Aggregate Implications of Indivisible Labor
- Matching, Search, and Heterogeneity
- Death to the Log-Linearized Consumption Euler Equation! (And Very Poor Health to the Second-Order Approximation)
- Population Changes and Capital Accumulation: The Aging of the Baby Boom
- Contributions Articles
- Growth Implosions and Debt Explosions: Do Growth Slowdowns Cause Public Debt Crises?
- Fiscal Policy and Human Capital Accumulation in a Home Production Economy
- Estimates of the Productivity Trend Using Time-Varying Parameter Techniques
- Topics Articles
- Auctions and Posted Prices in Directed Search Equilibrium
- Fiscal institutions and welfare in an open economy
- Testing for Stabilizing Monetary Policy Rules: How Robust to Alternative Specifications?
