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An economic model for the interpretation of business cycles and the efficiency of monetary policy

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  • Dalla, Eleni
  • Varelas, Erotokritos

Abstract

This paper attempts to investigate business cycles, assuming that both national income and the interest rate on loans are determined jointly in the product market and the banking sector. For this reason, a second order accelerator model in discrete time is combined with a two-stage Cournot game with scope economies for the oligopolistic banking sector. The presence of scope economies increases liquidity and hence, the destabilizing influence of the financial sector, affecting in turn the effectiveness of monetary policy. In addition, the model is calibrated to assess the ability of our system to interpret the cyclical path of national income over time and the possibility of the latter's convergence towards its steady-state. Performing a simulation process, we present the implications of different permanent shocks of monetary policy on national income diachronically.

Suggested Citation

  • Dalla, Eleni & Varelas, Erotokritos, 2016. "An economic model for the interpretation of business cycles and the efficiency of monetary policy," The Journal of Economic Asymmetries, Elsevier, vol. 14(PA), pages 29-38.
    • Handle: RePEc:eee:joecas:v:14:y:2016:i:pa:p:29-38
    DOI: 10.1016/j.jeca.2016.07.002
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    Cited by:

    1. Fabio Tramontana & Laura Gardini, 2021. "Revisiting Samuelson’s models, linear and nonlinear, stability conditions and oscillating dynamics," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 10(1), pages 1-15, December.
    2. Dalla, Eleni & Varelas, Erotokritos, 2019. "Regulation & oligopoly in banking: The role of banking cost structure," Journal of Economics and Business, Elsevier, vol. 104(C), pages 1-1.

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    More about this item

    Keywords

    Business cycles; Bank behavior; Monetary policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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