Bundesbank paper looks at secondary markets’ role in bank runs
Adding secondary markets to model significantly alters possible equilibria, authors say
A working paper published by the Deutsche Bundesbank presents a new method of modelling bank runs.
In Coordination failures, bank runs and asset prices, Monika Bucher, Diemo Dietrich and Mich Tvede outline a model in which banks can interact in secondary asset markets. This kind of activity is not part of the classic model of bank runs, first published in Diamond and Dybvig’s 1983 paper.
Introducing secondary asset markets “significantly alters the set of equilibria and their efficiency
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