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Monetary Policy and the Behavior of a Monopolistic Bank: A Theoretical Approach

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  • Eleni Dalla
  • Erotokritos Varelas

Abstract

This paper investigates the influence of monetary policy on the optimal behavior of a monopolistic bank. More specifically, we discuss how the overdraft rate and the minimum reserve requirements affect the equilibrium values of lending rate and deposit rate as well as the corresponding quantities, when there is only one commercial bank in the economy and the Central Bank. Moreover, we examine the impact of these changes on the magnitude of the spread between the equilibrium rates. It is demonstrated that monetary policy via the overdraft rate does not affect the spread, while the effect of a change in the fraction of the minimum reserve requirements differs depending on the case.

Suggested Citation

  • Eleni Dalla & Erotokritos Varelas, 2013. "Monetary Policy and the Behavior of a Monopolistic Bank: A Theoretical Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(11), pages 1439-1450.
    • Handle: RePEc:asi:aeafrj:v:3:y:2013:i:11:p:1439-1450:id:1099
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    Citations

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    Cited by:

    1. Eleni Dalla, 2018. "On the effect of Cournot and Stackelberg competition in the banking sector on the investment cycle," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 11(5), pages 499-515.
    2. Dalla, Eleni & Varelas, Erotokritos, 2016. "An economic model for the interpretation of business cycles and the efficiency of monetary policy," The Journal of Economic Asymmetries, Elsevier, vol. 14(PA), pages 29-38.
    3. Eleni Dalla, 2017. "Monetary policy implications on the investment decision: Do economies of scope in the banking sector matter?," Discussion Paper Series 2017_05, Department of Economics, University of Macedonia, revised Mar 2017.
    4. Babatunde .Wasiu. ADEOYE & Olufemi Muibi SAIBU, 2014. "Monetary Policy Shocks and Exchange Rate Volatility in Nigeria," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(4), pages 544-562, April.

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