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Liquidity risk and bank panic

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Liquidity Risk and Bank Panic

Consider a random-relocation economy. Each person receives an endowment of ?? goods when young and nothing when old. People only want to consume when old and the utility function is: ????????(?? ?? 2 ) + (1-??)??????(?? ?? 2 ). The money stock is constant and equal to 1, 000. The net rate of return on capital ?? = 3/2. The probability of an agent be forced to move Is ?? = 1/2. Population is constant at ?? = 1000. 1. If there are no banks, how many goods will movers consume? What about non-movers? 2. If there are competitive banks, how many goods will movers and non-movers consume? Is there perfect risk-sharing? 3. What is the the deposits to currency ratio ?? that the bank will hold?

Reference no: EM133123889

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