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Competition among banks and the pass-through of monetary policy

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  • Jochen H. F. Güntner

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

Empirically, stiffer competition among commercial banks implies that (i) loan rates and deposit rates correlate more tightly with the policy rate, (ii) loan rates exceed the policy rate less, and (iii) deposit rates undercut the policy rate more. I find that a New Keynesian model with monopolistically competitive banks can account for the first two of these empirical facts. The model predicts that increased competition in the banking sector reduces the spread between the steady-state policy rate and the loan rate. Furthermore, augmented competition among banks amplifies the pass-through of monetary policy to the real economy.

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File URL: http://www.ww.uni-magdeburg.de/fwwdeka/femm/a2009_Dateien/2009_35.pdf
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Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 09035.

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Length: 45 pages
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:mag:wpaper:09035

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Keywords: Monopolistically competitive banks; Collateral; External nance premium; Inside money premium;

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References

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Cited by:
  1. Ansgar Belke & Joscha Beckmann & Florian Verheyen, 2012. "Interest Rate Pass-Through in the EMU – New Evidence from Nonlinear Cointegration Techniques for Fully Harmonized Data," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0350, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Güntner, Jochen H.F., 2011. "Competition among banks and the pass-through of monetary policy," Economic Modelling, Elsevier, Elsevier, vol. 28(4), pages 1891-1901, July.
  3. Drumond, Inês & Jorge, José, 2013. "Loan interest rates under risk-based capital requirements: The impact of banking market structure," Economic Modelling, Elsevier, Elsevier, vol. 32(C), pages 602-607.

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