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This paper rationalizes as the outcome of an optimal policy decision the pattern of reserve requirements and other macroeconomic variables in the aftermath of a bank run. The paper develops a general equilibrium model that departs from the standard small open economy (SOE) model in three dimensions: (i) capital mobility is not perfect, (ii) there exists a costly banking system, and (iii) there is an externality affecting individual banks' decisions. The results suggest that the path of reserve requirements would depend on the type of shock that the economy receives and the effect that this shock produces on the interest rate. Interestingly, the size of the risk premium will affect the reaction of the economy to the shock. It is also shown that the dynamic adjustment will be slightly different for permanent and temporary shocks, and it will also depend on the access that the economy has to foreign funds. [ABSTRACT FROM AUTHOR]

This paper studies a New Keynesian model in which monetary policy may switch between regimes. We derive sufficient conditions for indeterminacy that are easy to implement and we show that the necessary and sufficient condition for determinacy, provided by Davig and Leeper, is necessary but not sufficient. More importantly, we use a two-regime model to show that indeterminacy in a passive regime may spill over to an active regime no matter how active the latter regime is. As a result, a passive monetary policy is more damaging than has been previously thought. Our results imply that the propagation of shocks in an active regime, such as that of the Federal Reserve in the post-1982 period, may be substantially affected by the possibility of a return to a passive regime of the kind that was followed in the 1960s and 1970s. [ABSTRACT FROM AUTHOR]

Examines the role played by banks as payment intermediary between buyer and seller using the medieval banks of continental Europe as models. Use of the process in an environment of intermediate good exchange with incomplete contract enforcement; Capability of early banks to access the `netting credit' existing by virtue of there being a high proportion of offsetting transactions in an economy.