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Monetary policy implications on the investment decision: Do economies of scope in the banking sector matter?

Author

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  • Eleni Dalla

    (Department of Economics, University of Macedonia)

Abstract

In this paper, we investigate the effectiveness of monetary policy, in the context of a theoretical model that captures both the banking and the firm behavior. Following the industrial organization approach to banking, the banking sector is described by a two-stage Cournot game with scope economies. On the other hand, the firm behavior concerns the investment decision which is explained using a second order accelerator model in discrete time. Considering the interbank rate and the reserve requirements as the instruments of monetary policy, it is demonstrated that its effectiveness depends on the type of scope economies in the oligopolistic banking sector..

Suggested Citation

  • 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.
    • Handle: RePEc:mcd:mcddps:2017_05
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    interbank rate; investment decision; reserve requirements; scope economies.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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