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Business cycles and monetary regimes in emerging economies: A role for a monopolistic banking sector

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  • Mandelman, Federico S.

Abstract

This study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle. Strategic limit pricing, aimed at protecting retail niches from potential competitors, generates countercyclical bank markups. Markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms' balance-sheets, increasing the risk perception of lenders. I use Bayesian techniques and data from Argentina to show that the inclusion of monopolistic banking improves the fit of the New Keynesian small open economy model.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 81 (2010)
Issue (Month): 1 (May)
Pages: 122-138

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Handle: RePEc:eee:inecon:v:81:y:2010:i:1:p:122-138

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Small open economy Countercyclical bank markups Exchange rate regimes Bayesian estimation balance-sheet effect;

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References

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Cited by:
  1. Fujiwara, Ippei & Teranishi, Yuki, 2011. "Real exchange rate dynamics revisited: A case with financial market imperfections," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1562-1589.
  2. Franziska Bremus & Claudia Buch & Katheryn Russ & Monika Schnitzer, 2013. "Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity," NBER Working Papers 19093, National Bureau of Economic Research, Inc.
  3. Ippei Fujiwara & Yuki Teranishi, 2009. "Financial Stability in Open Economies," IMES Discussion Paper Series 09-E-09, Institute for Monetary and Economic Studies, Bank of Japan.
  4. repec:csg:ajrcwp:1306 is not listed on IDEAS
  5. Beatriz de Blas & Katheryn Russ, 2010. "FDI in the Banking Sector," Working Papers 108, University of California, Davis, Department of Economics.

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