A Systematic Banking Collapse in a Perfect Foresight World
44 Pages Posted: 3 Feb 2001 Last revised: 23 Nov 2022
Date Written: June 1981
Abstract
In this paper we present a model in which a systematic banking collapse is possible in a perfect foresight, general equilibrium context. Our aim is to determine con3itions under which a collapse will eventually occur and the timing of such a collapse. The collapse can occur endogenously, driven by market fundamentals. Alternatively, it can be caused by a mass hysteria which generates itself in reality. Vie also compare the assumptions and implications of our model to the observable phenomena of the 1930's.
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