The dynamics of a banking duopoly with capital regulations
AbstractThis paper analyses the dynamics of a banking duopoly game with heterogeneous and homogeneous players (as regards the type of expectations' formation), to investigate the effects of the capital requirements introduced by international accords (Basel-I in 1988 and more recently Basel-II and Basel-III), in the context of the Monti-Klein model. This analysis reveals that the policy of introducing a capital requirement tends to stabilise the market equilibrium (both with heterogeneous and homogeneous banks). Moreover, it is shown that 1) when the capital standard is reduced the market stability is lost through a flip bifurcation and subsequently a cascade of flip bifurcations may lead to periodic cycles and chaos; 2) when the expectations are heterogeneous even the case of multi-stability may be present.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 37 (2014)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
Bifurcation; Chaos; Cournot; Oligopoly; Banking; Capital regulation;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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