A Model Of Bank Runs With Nominal Variables

Our paper is based on the chief structure of microeconomics of banking theory, we try to study how interest policy would adjust people’s behavior and what its limitation is. We design three models, which are with real variables, with nominal variables and perfect information, and with nominal variables but insufficient information,to discuss the driven force of bank runs,and the role of monetary in it. My model proves that in bank runs banks can meet depositors’ demand by both increasing nominal deposit interest rates and recalling loans, and there would be an optimal balance between the two policies. However, the effectiveness of nominal interest rates policy is determined by depositors’ prospect of future economy. If this prospect is low, increasing interest rates would be invalid and banks are forced to recall more loans, which would jeopardize whole credit system.