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Endogeneous Risk in Monopolistic Competition

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  • Vladislav Damjanovic

Abstract

We consider a model of financial intermediation with a monopolistic competition market structure. A non-monotonic relationship between the risk measured as a probability of default and the degree of competition is established.

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File URL: http://www.st-andrews.ac.uk/economics/CDMA/papers/wp1210.pdf
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Bibliographic Info

Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 201210.

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Date of creation: 24 Oct 2012
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Handle: RePEc:san:cdmawp:1210

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Related research

Keywords: Competition and Risk; Risk in DSGE models; Bank competition; Bank failure; Default correlation; Risk-shifting effect; Margin effect.;

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References

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  1. Franklin Allen & Douglas Gale, 2004. "Competition and financial stability," Proceedings, Federal Reserve Bank of Cleveland, pages 453-486.
  2. David Martinez-Miera & Rafael Repullo, 2010. "Does Competition Reduce the Risk of Bank Failure?," Review of Financial Studies, Society for Financial Studies, vol. 23(10), pages 3638-3664, October.
  3. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  4. Galina Vereshchagina & Hugo A. Hopenhayn, 2009. "Risk Taking by Entrepreneurs," American Economic Review, American Economic Association, vol. 99(5), pages 1808-30, December.
  5. Gianni De Nicoló & John H. Boyd, 2003. "Bank Risk-Taking and Competition Revisited," IMF Working Papers 03/114, International Monetary Fund.
  6. John H. Boyd & Gianni De Nicolã, 2005. "The Theory of Bank Risk Taking and Competition Revisited," Journal of Finance, American Finance Association, vol. 60(3), pages 1329-1343, 06.
  7. Keeley, Michael C, 1990. "Deposit Insurance, Risk, and Market Power in Banking," American Economic Review, American Economic Association, vol. 80(5), pages 1183-1200, December.
  8. Andrea Gerali & Stefano Neri & Luca Sessa & Federico M. Signoretti, 2010. "Credit and Banking in a DSGE Model of the Euro Area," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 107-141, 09.
  9. Franklin Allen & Douglas Gale, 2001. "Comparing Financial Systems," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262511258, December.
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Cited by:
  1. Tatiana Damjanovic & Vladislav Damjanovic & Charles Nolan, 2013. "Universal vs separated banking with deposit insurance in a macro model," Discussion Papers 1308, Exeter University, Department of Economics.

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