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Heterogeneous fragility, systematic panic and optimal transparency

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  • Bo, Wang
  • Suli, Zheng

Abstract

In this study, we provide a model of systematic panic among financial institutions with heterogeneous fragility. During a systematic panic, institutions characterized by a higher degree of fragility are more aggressive to withdrawals, and such aggressiveness increases linearly with their fragility. We derive an analytical solution for this linear relationship using a global game framework, and demonstrate that transparency does not always endanger the regime; When the outside option is large, transparency increases the strength of the regime.

Suggested Citation

  • Bo, Wang & Suli, Zheng, 2020. "Heterogeneous fragility, systematic panic and optimal transparency," Economics Letters, Elsevier, vol. 191(C).
    • Handle: RePEc:eee:ecolet:v:191:y:2020:i:c:s0165176520300859
    DOI: 10.1016/j.econlet.2020.109096
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    References listed on IDEAS

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    More about this item

    Keywords

    Systematic panic; Financial fragility; Transparency;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G2 - Financial Economics - - Financial Institutions and Services

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