Monetary policy transmission under different banking structures: the role of capital and heterogeneity

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14 Citazioni (Scopus)

Abstract

This work deals with the transmission of monetary policy through the bank loan market, in the presence of a capital requirement regulation. Unlike standard models, based on the brepresentative bankQ shortcut, we adopt the heterogeneous agents approach: this allows us to explicitly model the strategic interaction between wellcapitalized and under-capitalized banks. The main results are the following. (I) The propagation of a monetary policy impulse through the loan market differs considerably, depending on the market structure: under monopolistic competition, strategic complementarity among well-capitalized banks leads to a bmultiplier effectQ; in the Cournot oligopoly framework, an effect of the opposite sign is at work, due to strategic substitutability. (II) Well-capitalized banks are more important, in shaping the adjustment following a monetary policy shock, than what is implied by their relative number over total; this fact strengthens the monetary policy effectiveness. This result holds under both monopolistic competition and oligopoly, although the interaction among banks, leading to such a result, differs across the two banking structures.
Lingua originaleEnglish
pagine (da-a)78-100
Numero di pagine23
RivistaINTERNATIONAL REVIEW OF ECONOMICS & FINANCE
Volume16
DOI
Stato di pubblicazionePubblicato - 2007

Keywords

  • Banking
  • Monetary policy

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