Working Paper: NBER ID: w0823
Authors: Peter M. Garber
Abstract: Speculative runs on asset price fixing schemes are most often attributed either to an inexplicable mass hysteria or to a sudden, unpredictable random disturbance. Such attribution places runs and panics outside of the realm of scientific inquiry. Alternatively, in this paper I define the notion of a run as a discontinuous shift in portfolio asset holdings brought about by a belief in the end of the price fixing regime. I also argue that runs are foreseeable events and employ the current difficulties of S & L's to serve as an extended example which emphasizes such predictability.
Keywords: savings and loans; lender of last resort; runs; inflation
JEL Codes: G21; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Government's role as a lender of last resort (H12) | Depositor confidence (G21) |
| Depositor confidence (G21) | Likelihood of a run on S&Ls (E44) |
| Government guarantees (H81) | Depositor fears of capital loss (G21) |
| Expectation of inflation (E31) | Depositor behavior (D14) |
| Reduced depositor confidence (G21) | Higher likelihood of a run on S&Ls (E44) |
| Increased inflation (E31) | Likelihood of a run on S&Ls (E44) |
| Government's commitment to S&Ls (G28) | Buffer against potential runs (E44) |