We argue that the recent large increase in deposits' turnover in many developing countries with high HIV/AIDS prevalence is associated with the spread of the disease. The point is that the need to pay for individual treatments force large-scale withdrawals of households' deposits, and that those large withdrawals put the banking industry at risk. In a standard demand-deposit model where the HIV/AIDS prevalence among depositors is random, we show that (1) the probability of a large-scale banking failure without a bank run increases as the odds of any prevalence level increases, and (2) it is always optimal to deposit, and thus to accept the risk of banking failure, to maintain long-term investments in place.
This paper is dedicated to the memory of the great statistician Melvin J. Hinich, with whom we were in contact about this research prior to his untimely death from a tragic fall. We develop a neoclassical growth model with habit formation to exhibit an equilibrium nonlinear relationship between aggregate consumption growth and income growth. We first provide empirical evidence consistent with this relationship both for the United States and France, and we reject the hypothesis of a random walk for consumption. We then estimate this nonlinear relationship. We find for both countries robust evidence of persistence, nonlinearity, and cyclicity in the relationship between consumption and income.
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