Business Cycles and Monetary Regimes in Emerging Economies: A Role for a Monopolistic Banking Sector
- Topics:
- Commercial Banking,
- Global Strategy
- Tags:
- Balance Sheets,
- Markup,
- Financial Statements,
- Financial Services,
- Financial Accounting,
- Finance,
- Economy,
- Business Operations,
- Boston College,
- Banking,
- ...
- Source:
- Boston College
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Overview: Starting from a variant of the New Keynesian model for a small open economy, this paper extends the standard credit channel framework to show that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle. This novel modeling of the banking system captures various well-documented facts in developing economies. the paper shows that strategic limit pricing, aimed at protecting retail niches from potential competitors, generates countercyclical bank markups. Markup increments, as a consequence of sudden capital outflows, end up increasing borrowing costs for firms, as well as damaging the financial position of firms' balance sheets.
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Format: PDF | Size: 607KB | Date: Nov 2005 | Pages: 46
