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Monopolistic Pricing in the Banking Industry: a Dynamic Portfolio Model

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Author Info
Enzo Dia (Università degli studi di Milano-Bicocca)
Abstract

This work develops a portfolio model of the banking firm where both the size and composition of the portfolio are jointly determined. The model provides a quite simple micro-foundation of the credit channel of the transmission of monetary policy. It allows analysing the pricing policies of the banking firm, and shows how interest rate shocks and credit quality shocks (the real shocks that change expected default costs) affect the equilibrium level of loans and deposits.

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Paper provided by EconWPA in its series Finance with number 0411025.

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Length: 51 pages
Date of creation: 11 Nov 2004
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Handle: RePEc:wpa:wuwpfi:0411025

Note: Type of Document - pdf; pages: 51
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Web page: http://129.3.20.41

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G - Financial Economics
E - Macroeconomics and Monetary Economics

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  1. Thistle, Paul D. & McLeod, Robert W. & Conrad, B. Lynne, 1989. "Interest rates and bank portfolio adjustments," Journal of Banking & Finance, Elsevier, vol. 13(1), pages 151-161, March. [Downloadable!] (restricted)
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  3. Steve Salop, 1976. "Information and monopolistic competition," Special Studies Papers 74, Board of Governors of the Federal Reserve System (U.S.).
  4. Fried, Joel & Howitt, Peter, 1980. "Credit Rationing and Implicit Contract Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 471-87, August. [Downloadable!] (restricted)
  5. Osborne, Dale K, 1982. "The Cost of Servicing Demand Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 14(4), pages 479-93, November. [Downloadable!] (restricted)
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  7. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-87, September. [Downloadable!] (restricted)
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  8. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
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  9. Cosimano, Thomas F., 1988. "The banking industry under uncertain monetary policy," Journal of Banking & Finance, Elsevier, vol. 12(1), pages 117-139, March. [Downloadable!] (restricted)
  10. Flannery, Mark J, 1982. "Retail Bank Deposits as Quasi-Fixed Factors of Production," American Economic Review, American Economic Association, vol. 72(3), pages 527-36, June. [Downloadable!] (restricted)
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  12. Hoffman, Dennis L. & Rasche, Robert H. & Tieslau, Margie A., 1995. "The stability of long-run money demand in five industrial countries," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 317-339, April. [Downloadable!] (restricted)
  13. Douglas W. Diamond & Raghuram G. Rajan, 1999. "Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking," NBER Working Papers 7430, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. Salop, Steven, 1976. "Information and Monopolistic Competition," American Economic Review, American Economic Association, vol. 66(2), pages 240-45, May. [Downloadable!] (restricted)
  15. Hess, Alan C, 1995. "Portfolio Theory, Transaction Costs, and the Demand for Time Deposits," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1015-32, November. [Downloadable!] (restricted)
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  17. Hutchison, David E, 1995. "Retail Bank Deposit Pricing: An Intertemporal Asset Pricing Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 217-31, February. [Downloadable!] (restricted)
  18. Hess, Alan C, 1991. "The Effects of Transaction Costs on Households' Financial Asset Demands," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 383-409, August. [Downloadable!] (restricted)
  19. Mitchell Berlin & Loretta J. Mester, 1997. "On the Profitability and Cost of Relationship Lending," Center for Financial Institutions Working Papers 97-43, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  20. Cosimano, Thomas F, 1987. "The Federal Funds Market under Bank Deregulation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 19(3), pages 326-39, August. [Downloadable!] (restricted)
  21. Berger, Allen N & Udell, Gregory F, 1992. "Some Evidence on the Empirical Significance of Credit Rationing," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 1047-77, October. [Downloadable!] (restricted)
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  22. Neumark, David & Sharpe, Steven A, 1992. "Market Structure and the Nature of Price Rigidity: Evidence from the Market for Consumer Deposits," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 657-80, May. [Downloadable!] (restricted)
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  23. Wheelock, David C. & Wilson, Paul W., 2001. "New evidence on returns to scale and product mix among U.S. commercial banks," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 653-674, June. [Downloadable!] (restricted)
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  24. Berlin, Mitchell & Mester, Loretta J, 1999. "Deposits and Relationship Lending," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 12(3), pages 579-607.
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  25. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-66, September. [Downloadable!] (restricted)
  26. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-45, September. [Downloadable!] (restricted)
  27. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  28. Flannery, Mark J, 1994. "Debt Maturity and the Deadweight Cost of Leverage: Optimally Financing Banking Firms," American Economic Review, American Economic Association, vol. 84(1), pages 320-31, March. [Downloadable!] (restricted)
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  29. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January. [Downloadable!] (restricted)
  30. English, William B., 1999. "Inflation and financial sector size," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 379-400, December. [Downloadable!] (restricted)
  31. Scott Freeman & Finn E. Kydland, 2000. "Monetary Aggregates and Output," American Economic Review, American Economic Association, vol. 90(5), pages 1125-1135, December. [Downloadable!] (restricted)
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