Money, credit and imperfect competition among banks

Arbeitspapier

Using micro-level data for the U.S., we provide new evidence-at national and state levels - of a positive (negative) relationship between the standard deviation (coefficient of variation) and the average in bank lending-rate markups. In a quantitative theory consistent with these empirical observations, banks' lending market power is determined in equilibrium and is a novel channel of monetary policy. At low inflation, banks tend to extract higher markups from existing loan customers rather than competing for additional loans. As a result, banking activity need not be welfare-improving if inflation is sufficiently low. This result speaks to concerns regarding market power in the banking sectors of low-inflation countries. Normatively, under a given inflation target, welfare gains arise if a central bank can use additional liquidity-provision (or tax-and-transfer) instruments to offset banks' market-power incentives.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Queen’s Economics Department Working Paper ; No. 1481

Classification and Topics

• Classification: Wirtschaft ; Demand for Money ; Financial Markets and the Macroeconomy ; Money Supply; Credit; Money Multipliers ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: Banking and Credit ; Markups Dispersion ; Market Power ; Stabilization Policy ; Liquidity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Head, Allen ; Kam, Timothy ; Ng, Sam ; Pan, Isaac
• Event: Veröffentlichung
• (who): Queen's University, Department of Economics
• (where): Kingston (Ontario)
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/260486
• Last update: 10.03.2025, 11:45 AM CET