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Competition And Leader-Follower Interactions: Panel Estimates On Indonesian Banking

Author

Listed:
  • Pakasa Bary
  • Rio Khasananda
  • Rahmat Eldhie Sya’banni

    (Bank Indonesia)

  • Peter Abdullah

Abstract

This paper discusses banking competition and leader-follower relationship. Banking competition is investigated using some specification from Monti-Klein model that allows leader-follower (i.e. Stackleberg) relationship, the possibility of Cournot competition and other form of competition. We use monthly observations across 119 banks listed in Indonesia using the standard panel fixed effect methodology to absorb time-invariant unobserved heterogeneity and dynamic panel data to minimize the risks of endogeneity. The estimation suggests the leader-follower relationship among banks exist both on loan and deposit markets. The results are mostly consistent across different groups and on full sample estimates, although are quite different in magnitudes. While leader-follower relationship is dominantly occur in credit market, there are some evidence of simultaneous appearance of both leader-follower and Cournot interactions on the deposit market.

Suggested Citation

  • Pakasa Bary & Rio Khasananda & Rahmat Eldhie Sya’banni & Peter Abdullah, 2016. "Competition And Leader-Follower Interactions: Panel Estimates On Indonesian Banking," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 19(1), pages 21-38, July.
    • Handle: RePEc:idn:journl:v:19:y:2016:i:1a:p:21-38
    DOI: 10.21098/bemp.v19i1.598
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    References listed on IDEAS

    as
    1. Adams, Robert M. & Amel, Dean F., 2011. "Market structure and the pass-through of the federal funds rate," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1087-1096, May.
    2. Xavier Freixas & Jean-Charles Rochet, 2008. "Microeconomics of Banking, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262062704, December.
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    More about this item

    Keywords

    Banking; monetary policy.;

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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