DEMAND DEPOSIT BANKING AND OPEN MARKET OPERATIONS
Abstract
The institutional combination of illiquid assets and demand deposit
banking is regarded as vulnerable to collapse because of the impatience
of depositors. We suggest that the mechanism of fully backed central bank
money is a means of redress. The vehicle is the state space representation
of standard dynamic ways of treating the problem.
Keyword: bank collapse, accommodating monetary policy
JEL Classification Nos. E52, E61.