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.

Baglioni, A. S., Monetary policy transmission under different banking structures: the role of capital and heterogeneity, <<INTERNATIONAL REVIEW OF ECONOMICS & FINANCE>>, 2007; 16 (1): 78-100. [doi:doi.org/10.1016/j.iref.2005.04.002] [http://hdl.handle.net/10807/24778]

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

Baglioni, Angelo Stefano
2007

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.
Inglese
Baglioni, A. S., Monetary policy transmission under different banking structures: the role of capital and heterogeneity, <<INTERNATIONAL REVIEW OF ECONOMICS & FINANCE>>, 2007; 16 (1): 78-100. [doi:doi.org/10.1016/j.iref.2005.04.002] [http://hdl.handle.net/10807/24778]
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/10807/24778
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