IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Domestic and International Effects of Interstate U.S. Banking

  • Fabio Ghironi

    ()

    (Boston College)

  • Viktors Stebunovs

    (Board of Governors of the Federal Reserve System)

This paper studies the domestic and international effects of the transition to an interstate banking system implemented by the U.S. since the late 1970s in a dynamic, stochastic, general equilibrium model with endogenous producer entry. Interstate banking reduces the degree of local monopoly power of financial intermediaries. We show that the an economy that implements this form of deregulation experiences increased producer entry, real exchange rate appreciation, and a current account deficit. The rest of the world experiences a long-run increase in GDP and consumption. Less monopoly power in financial intermediation results in less volatile business creation, reduced markup countercyclicality, and weaker substitution effects in labor supply in response to productivity shocks. Bank market integration thus contributes to a moderation of firm-level and aggregate output volatility. In turn, trade and financial ties between the two countries in our model allow also the foreign economy to enjoy lower GDP volatility in most scenarios we consider. The results of the model are consistent with features of the U.S. and international business cycle after the U.S. began its transition to interstate banking.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://fmwww.bc.edu/EC-P/wp765.pdf
File Function: main text
Download Restriction: no

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 765.

as
in new window

Length:
Date of creation: 17 Dec 2010
Date of revision:
Handle: RePEc:boc:bocoec:765
Contact details of provider: Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Phone: 617-552-3670
Fax: +1-617-552-2308
Web page: http://fmwww.bc.edu/EC/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," Center for International and Development Economics Research, Working Paper Series qt124628cx, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  2. Kerr, William R. & Nanda, Ramana, 2009. "Democratizing entry: Banking deregulations, financing constraints, and entrepreneurship," Journal of Financial Economics, Elsevier, vol. 94(1), pages 124-149, October.
  3. Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry: theory and evidence," Computing in Economics and Finance 2006 112, Society for Computational Economics.
  4. Yuliya Demyanyk & Charlotte Ostergaard & Bent E. Sørensen, 2006. "FU.S. banking deregulation, small businesses, and interstate insurance of personal income," Working Paper 2006/09, Norges Bank.
  5. Beatriz de Blas & Katheryn Niles Russ, 2010. "All Banks Great, Small, and Global: Loan pricing and foreign competition," NBER Working Papers 16029, National Bureau of Economic Research, Inc.
  6. Mandelman, Federico S., 2010. "Business cycles and monetary regimes in emerging economies: A role for a monopolistic banking sector," Journal of International Economics, Elsevier, vol. 81(1), pages 122-138, May.
  7. Vives, Xavier, 1990. "Banking Competition and European Integration," CEPR Discussion Papers 373, C.E.P.R. Discussion Papers.
  8. Caballero, Ricardo J & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2006. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," Center for International and Development Economics Research, Working Paper Series qt7xc0g8mm, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  9. Ben Hunt & Alessandro Rebucci, 2003. "The U.S. Dollar and the Trade Deficit; What Accounts for the Late 1990's?," IMF Working Papers 03/194, International Monetary Fund.
  10. Maurice Obstfeld & Kenneth Rogoff & Ben Bernanke & Kenneth Rogoff, . "The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?," Working Paper 32326, Harvard University OpenScholar.
  11. repec:lmu:muenar:20226 is not listed on IDEAS
  12. Giannone, Domenico & Lenza, Michele & Reichlin, Lucrezia, 2008. "Explaining the Great Moderation: it is not the shocks," Working Paper Series 0865, European Central Bank.
  13. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
  14. Christopher A. Sims & Tao Zha, 2005. "Were There Regime Switches in U.S. Monetary Policy?," Working Papers 92, Princeton University, Department of Economics, Center for Economic Policy Studies..
  15. Jayaratne, Jith & Strahan, Philip E, 1998. "Entry Restrictions, Industry Evolution, and Dynamic Efficiency: Evidence from Commercial Banking," Journal of Law and Economics, University of Chicago Press, vol. 41(1), pages 239-73, April.
  16. Michael B. Devereux & Alan Sutherland, 2011. "Country Portfolios In Open Economy Macro‐Models," Journal of the European Economic Association, European Economic Association, vol. 9(2), pages 337-369, 04.
  17. Allen N. Berger & Rebecca S. Demsetz & Philip E. Strahan, 1998. "The consolidation of the financial services industry: causes, consequences, and implications for the future," Finance and Economics Discussion Series 1998-46, Board of Governors of the Federal Reserve System (U.S.).
  18. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  19. Roger Aliaga‐Díaz & María Pía Olivero, 2011. "The Cyclicality Of Price‐Cost Margins In Banking: An Empirical Analysis Of Its Determinants," Economic Inquiry, Western Economic Association International, vol. 49(1), pages 26-46, 01.
  20. Yang, Xiaokai & Heijdra, Ben J, 1993. "Monopolistic Competition and Optimum Product Diversity: Comment," American Economic Review, American Economic Association, vol. 83(1), pages 295-301, March.
  21. De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
  22. Astrid A. Dick, 2006. "Nationwide Branching and Its Impact on Market Structure, Quality, and Bank Performance," The Journal of Business, University of Chicago Press, vol. 79(2), pages 567-592, March.
  23. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary fiscal shocks and the trade deficit," International Finance Discussion Papers 825, Board of Governors of the Federal Reserve System (U.S.).
  24. Friederike Niepmann, 2013. "Banking across Borders," CESifo Working Paper Series 4120, CESifo Group Munich.
  25. Franziska Bremus & Claudia Buch & Katheryn Russ & Monika Schnitzer, 2013. "Big Banks and Macroeconomic Outcomes: Theory and Cross-Country Evidence of Granularity," NBER Working Papers 19093, National Bureau of Economic Research, Inc.
  26. Hamano Masashige, 2012. "International equity and bond positions in a DSGE model with variety risk in consumption," CREA Discussion Paper Series 12-05, Center for Research in Economic Analysis, University of Luxembourg.
  27. Corsetti, Giancarlo & Dedola, Luca & Leduc, Sylvain, 2004. "International Risk Sharing and the Transmission of Productivity Shocks," CEPR Discussion Papers 4746, C.E.P.R. Discussion Papers.
  28. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2007. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Working Papers 13199, National Bureau of Economic Research, Inc.
  29. Bilbiie, Florin Ovidiu & Ghironi, Fabio & Melitz, Marc J, 2011. "Endogenous Entry, Product Variety, and Business Cycles," CEPR Discussion Papers 8564, C.E.P.R. Discussion Papers.
  30. Fabio Ghironi & Marc J. Melitz, 2004. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," NBER Working Papers 10540, National Bureau of Economic Research, Inc.
  31. Emilia Bonaccorsi di Patti & Giorgio Gobbi, 2003. "The effects of bank mergers on credit availability: evidence from corporate data," Temi di discussione (Economic working papers) 479, Bank of Italy, Economic Research and International Relations Area.
  32. Cédric Tille & Eric van Wincoop, 2007. "International capital flows," Staff Reports 280, Federal Reserve Bank of New York.
  33. Enrique G. Mendoza & Vincenzo Quadrini & Jose-Victor Rios-Rull, 2007. "Financial Integration, Financial Deepness and Global Imbalances," NBER Working Papers 12909, National Bureau of Economic Research, Inc.
  34. Florin Bilbiie & Fabio Ghironi & Marc Melitz, 2012. "Endogenous Entry, Product Variety and Business Cycles," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00680634, HAL.
  35. Nir Jaimovich, 2004. "Firm Dynamics, Markup Variations, and the Business Cycle," Discussion Papers 07-013, Stanford Institute for Economic Policy Research, revised Mar 2007.
  36. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  37. Donald Morgan & Bertrand Rime & Philip Strahan, 2003. "Bank Integration and State Business Cycles," NBER Working Papers 9704, National Bureau of Economic Research, Inc.
  38. Ghironi, Fabio & Melitz, Marc, 2007. "Trade Flow Dynamics with Heterogeneous Firms," Scholarly Articles 3229097, Harvard University Department of Economics.
  39. Ricardo Correa & Gustavo A. Suarez, 2009. "Firm volatility and banks: evidence from U.S. banking deregulation," Finance and Economics Discussion Series 2009-46, Board of Governors of the Federal Reserve System (U.S.).
  40. Cestone, G. & White, L., 1999. "Anti-Competitive Financial Contracting: the Design of Financial Claims," Papers 99.525, Toulouse - GREMAQ.
  41. Alejandro Justiniano & Giorgio E. Primiceri, 2006. "The Time Varying Volatility of Macroeconomic Fluctuations," NBER Working Papers 12022, National Bureau of Economic Research, Inc.
  42. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2013. "Market Deregulation and Optimal Monetary Policy in a Monetary Union," CEPR Discussion Papers 9742, C.E.P.R. Discussion Papers.
  43. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2008. "Varieties and the Transfer Problem: the Extensive Margin of Current Account Adjustment," CEPR Discussion Papers 6660, C.E.P.R. Discussion Papers.
  44. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2013. "Varieties and the transfer problem," Journal of International Economics, Elsevier, vol. 89(1), pages 1-12.
  45. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2007. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Chapters, in: NBER Macroeconomics Annual 2006, Volume 21, pages 107-180 National Bureau of Economic Research, Inc.
  46. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2005. "Expansionary Fiscal Shocks and the US Trade Deficit," International Finance, Wiley Blackwell, vol. 8(3), pages 363-397, December.
  47. Cerasi, V. & Chizzolini, B. & Ivaldi, M., 1997. "Sunk Costs and Competitiveness of European Banks after Deregulation," Papers 97.478, Toulouse - GREMAQ.
  48. Nicola Cetorelli & Philip E. Strahan, 2006. "Finance as a Barrier to Entry: Bank Competition and Industry Structure in Local U.S. Markets," Journal of Finance, American Finance Association, vol. 61(1), pages 437-461, 02.
  49. Alessandra Fogli & Fabrizio Perri, 2006. "The "Great Moderation" and the US External Imbalance," NBER Working Papers 12708, National Bureau of Economic Research, Inc.
  50. Angelini, Paolo & Cetorelli, Nicola, 2003. " The Effects of Regulatory Reform on Competition in the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(5), pages 663-84, October.
  51. Aliaga-Díaz, Roger & Olivero, María Pía, 2010. "Is there a financial accelerator in US banking?: Evidence from the cyclicality of banks' price-cost margins," Economics Letters, Elsevier, vol. 108(2), pages 167-171, August.
  52. Federico S. Mandelman, 2011. "Business Cycles and the Role of Imperfect Competition in the Banking System," International Finance, Wiley Blackwell, vol. 14(1), pages 103-133, 04.
  53. Marianne Bertrand & Antoinette Schoar & David Thesmar, 2007. "Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985," Journal of Finance, American Finance Association, vol. 62(2), pages 597-628, 04.
  54. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2007. "Productivity, terms of trade and the `home market effect'," Journal of International Economics, Elsevier, vol. 73(1), pages 99-127, September.
  55. Gertler, Mark & Karadi, Peter, 2011. "A model of unconventional monetary policy," Journal of Monetary Economics, Elsevier, vol. 58(1), pages 17-34, January.
  56. Andrea Ferrero, 2007. "The long-run determinants of U.S. external imbalances," Staff Reports 295, Federal Reserve Bank of New York.
  57. Stefan Notz, 2012. "Macroeconomic Implications of U.S. Banking Liberalisation," 2012 Meeting Papers 552, Society for Economic Dynamics.
  58. Gual, Jordi & Neven, Damien J, 1992. "Deregulation of the European Banking Industry (1980-1991)," CEPR Discussion Papers 703, C.E.P.R. Discussion Papers.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:boc:bocoec:765. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F Baum)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.