Edgar A. Ghossoub (The University of Texas at San Antonio) Robert Reed (University of Alabama Tuscaloosa) Thanarak Laosuthi (Kassetsart University)
Abstract
In this paper, we examine the impact of competition in the banking industry on ?nancial market activity. In particular, we explore this issue in a setting where banks simultaneously insure individuals against liquid- ity risk and o¤er loans to promote intertemporal consumption smoothing. In addition, spatial separation and private information generate a trans- actions role for money. Interestingly, we demonstrate that the industrial organization of the ?nancial system bears signi?cant implications for the e¤ects of monetary policy. Under perfect competition, higher rates of money growth lead to lower interest rates and a higher volume of lending activity. In contrast, in a monopoly banking sector, money growth restricts the availability of funds and raises the cost of borrowing.
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Publisher Info
Paper provided by College of Business, University of Texas at San Antonio in its series Working Papers with number
0069.
Find related papers by JEL classification: E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms