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On the effect of Cournot and Stackelberg competition in the banking sector on the investment cycle

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  • Eleni Dalla

Abstract

Following the industrial organisation approach to banking, we investigate the effects of banking conduct on the investment cycle. To achieve this, we extend the second order accelerator (SOA) model in discrete time, introducing the interest rate on loans. To the extent that the banking sector is concerned, we consider two different types of banking conduct: a Cournot game where the banks make their decision on the quantities of loans and deposits simultaneously, and a Stackelberg game in which they decide over these amounts sequentially. In addition, we follow a simulation process to confirm the dynamic properties of our theoretical findings and examine the effects of monetary policy on capital over time.

Suggested Citation

  • Eleni Dalla, 2018. "On the effect of Cournot and Stackelberg competition in the banking sector on the investment cycle," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 11(5), pages 499-515.
  • Handle: RePEc:ids:ijmefi:v:11:y:2018:i:5:p:499-515
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    References listed on IDEAS

    as
    1. Dalla, Eleni & Varelas, Erotokritos, 2016. "Second-order accelerator of investment: The case of discrete time," International Review of Economics Education, Elsevier, vol. 21(C), pages 48-60.
    2. repec:dgr:rugsom:01e44 is not listed on IDEAS
    3. Toolsema, Linda A. & Schoonbeek, L., 1999. "Bank behavior and the interbank rate in an oligopolistic market," Research Report 99E49, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Shota Yamazaki & Hiroaki Miyamoto, 2004. "A Note on Bank Behavior and Monetary Policies in an Oligopolistic Market," Industrial Organization 0408003, University Library of Munich, Germany.
    6. A'Hearn, Brian & Woitek, Ulrich, 2001. "More international evidence on the historical properties of business cycles," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 321-346, April.
    7. Eleni Dalla & Christos Karpetis & Erotokritos Varelas, 2014. "Monetary Policy Implications on Banking Conduct and Bank Clients’ Behavior," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(4), pages 427-440, December.
    8. Hillinger, Claude, 2005. "Evidence and Ideology in Macroeconomics: The Case of Investment Cycles," Discussion Papers in Economics 694, University of Munich, Department of Economics.
    9. Eleni Dalla & Erotokritos Varelas, 2013. "Monetary Policy and the Behavior of a Monopolistic Bank: A Theoretical Approach," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(11), pages 1439-1450, November.
    10. Toolsema, Linda A., 2001. "Bank competition with product differentiation under different monetary policy rules," Research Report 01E44, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    11. Stahl, Dale O, II, 1988. "Bertrand Competition for Inputs and Walrasian Outcomes," American Economic Review, American Economic Association, vol. 78(1), pages 189-201, March.
    12. Christos Karpetis & Erotokritos Varelas, 2012. "Fiscal and Monetary Policy Interaction in a Simple Accelerator Model," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 18(2), pages 199-214, May.
    13. Hillinger, Claude & Weser, Thilo, 1988. "The aggregation problem in business cycle theory," Journal of Economic Dynamics and Control, Elsevier, vol. 12(1), pages 37-40, March.
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    More about this item

    Keywords

    Cournot game; Stackelberg game; investment cycle; SOA; second order accelerator; monetary policy.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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