Asymmetric Information and Bank Runs

It is known that sunspots can trigger panic-based bank runs and that the optimal banking contract can tolerate panic-based runs. The existing literature assumes that these sunspots are based on a publicly observed extrinsic randomizing device. In this paper, I extend the analysis of panic-based runs to include an asymmetric-information, extrinsic randomizing device. Depositors observe different, but correlated, signals on the stability of the bank. I find that if the signals that depositors obtain are highly correlated, there exists a correlated equilibrium for some demand deposit contracts. In this equilibrium, either a full bank run, or a partial bank run, or non bank run occurs depending on the realization of the signals. Computed examples indicate that in some economies, a demand-deposit contract that tolerates bank runs and partial bank runs is optimal; while in some other economies a run-proof contract is optimal.

Herding and Bank Runs

Traditional models of bank runs do not allow for herding effects, because in these models withdrawal decisions are assumed to be made simultaneously. I extend the banking model to allow a depositor to choose his withdrawal time. When he withdraws depends on his liquidity type (patient or impatient), his private, noisy signal about the quality of the bank's portfolio, and the withdrawal histories of the other depositors. In some cases, the optimal banking contract permits herding runs. Some of these "runs" are efficient in that the bank is liquidated before the portfolio worsens. Others are not efficient; these are cases in which the herd is misled.

Endogenous Credit Cycles

We build a model in which verifiability of private debts, timing mismatch in debt settlements and borrowing leverage lead to liquidity crisis in the financial market. Central bank can respond to the liquidity crisis by adopting an unconventional monetary policy that resembles repurchase agreements between the central bank and the lenders. This policy is effective if the timing mismatch is nominal (i.e., a settlement participation risk). It is ineffective if the timing mismatch is driven by a real shock (i.e., preference shock).liquidity problem, timing mismatch, leveraging, liquidity shock, settlement risk, repurchase agreement, consumption shock

Endogenous credit cycles

We study models of credit with limited commitment, which implies endogenous borrowing constraints. We show that there are multiple stationary equilibria, as well as nonstationary equilibria, including some that display deterministic cyclic and chaotic dynamics. There are also stochastic (sunspot) equilibria, in which credit conditions change randomly over time, even though fundamentals are deterministic and stationary. We show this can occur when the terms of trade are determined by Walrasian pricing or by Nash bargaining. The results illustrate how it is possible to generate equilibria with credit cycles (crunches, freezes, crises) in theory, and as recently observed in actual economies.

Asymmetric Information and Bank Runs

It is known that sunspots can trigger panic-based bank runs and that the optimal banking contract can tolerate panic-based runs. The existing literature assumes that these sunspots are based on a publicly observed, extrinsic randomizing device. In this paper, I extend the analysis of panic-based runs to include an asymmetric-information, extrinsic randomizing device. Depositors observe different, but correlated, signals on the stability of the bank. I find that if the signals that depositors obtain are highly correlated, there exists a correlated equilibrium for some demand deposit contracts. In this equilibrium, a full bank run, a partial bank run, or non-bank run occurs depending on the realization of the signals. Computed examples indicate that in some economies, a demand-deposit contract that tolerates bank runs and partial bank runs is optimal, whereas in some other economies a run-proof contract is optimal

Spatial and state-dependent effects of transcranial magnetic stimulation of prefrontal cortex in non-human primates

The indirect effects of transcranial magnetic stimulation (TMS) within a distributed neural network are still largely unknown. Here we propose to use the non-human primate (NHP) oculomotor system as an animal model for investigating the effects of TMS. Across three animals, single pulses of TMS to the prefrontal cortex (PFC), including the frontal eye fields (FEF), reliably evoked a contralateral head turning synergy, similar to what is seen following intracortical microstimulation. Furthermore, double pulses of TMS paired with the memory-guided saccade paradigm only evoked neck muscle activity preceding contralateral saccades, showing similar state-dependency as previously observed in human TMS studies. These results indicate that the NHP oculomotor system is a feasible model to study the distributed effects of TMS outside of the stimulated area, and motivates future studies pairing TMS and neurophysiological recordings