Flight to liquidity and systemic bank runs

Arbeitspapier

This paper presents a general equilibrium, monetary model of bank runs to study monetary injections during financial crises. When the probability of runs is positive, depositors increase money demand and reduce deposits; at the economy-wide level, the velocity of money drops and deflation arises. Two quantitative examples show that the model accounts for a large fraction of (i) the drop in deposits in the Great Depression, and (ii) the $400 billion run on money market mutual funds in September 2008. In some circumstances, monetary injections have no effects on prices but reduce money velocity and deposits. Counterfactual policy analyses show that, if the Federal Reserve had not intervened in September 2008, the run on money market mutual funds would have been much smaller.

Object Details

• ISBN: 978-92-95081-97-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ESRB Working Paper Series ; No. 38

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Money Supply; Credit; Money Multipliers ; Financial Institutions and Services: General
• Subject: Monetary Injections ; Flight to Liquidity ; Bank Runs ; Endogenous Money Velocity ; Great Depression ; Great Recession ; Money Market Mutual Funds

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Robatto, Roberto
• Event: Veröffentlichung
• (who): European Systemic Risk Board (ESRB), European System of Financial Supervision
• (where): Frankfurt a. M.
• (when): 2017

Further information

• DOI: doi:10.2849/99786
• Handle: http://hdl.handle.net/10419/193545
• Last update: 10.03.2025, 11:45 AM CET