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The Diamond-Dybvig Model of Bank Runs 1. We know from problem Diamond's article (2007, p. 194) that r1 =1.28, and r2 = 1.813 are the

The Diamond-Dybvig Model of Bank Runs

1. We know from problem Diamond's article (2007, p. 194) that r1 =1.28, and r2 = 1.813 are the socially optimal deposit returns when f=1/4. Suppose that, even though the true fraction of agents with liquidity needs in period 1 is , agents think (incorrectly) that the proportion is f=.60. Will there be a run?

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