Credit channel and industrial firms' market power
The theoretical model presented here describes the interactions between a concentrated industrial sector and a perfectly competitive financial system where industrial firms can issue bonds or borrow from money from the banks in order to finance their investments. It is shown that an exogenous modification in the degree of concentration in the industrial sector does not only affects the equilibrium level of investments and the price of the final good, but also the transmission mechanism of the monetary policy. This paper also presents a first simplified framework to study the interactions between market power of industrial firms on the credit market and endogeneity of the composition of their external finance (in this context, bank credit and bonds). For this reason one of the main assumptions of the model is the existence of the "credit channel". The endogeneity of the composition of industrial firms' external finance also allows to formalise (although in a very simplified one-period context) a situation of simultaneity between financial and investment decisions for the firms.
|Date of creation:||Jul 2000|
|Date of revision:|
|Contact details of provider:|| Web page: http://www.economia.unimore.it|
More information through EDIRC
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.:
- Benjamin M. Friedman & Kenneth N. Kuttner, 1993.
"Economic Activity and the Short-term Credit Markets: An Analysis of Prices and Quantities,"
Brookings Papers on Economic Activity,
Economic Studies Program, The Brookings Institution, vol. 24(2), pages 193-284.
- Benjamin M. Friedman & Kenneth N. Kuttner, 1993. "Economic activity and the short-term credit markets: an analysis of prices and quantities," Working Paper Series, Macroeconomic Issues 93-17, Federal Reserve Bank of Chicago.
- repec:cup:cbooks:9780521584111 is not listed on IDEAS
- Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, June.
When requesting a correction, please mention this item's handle: RePEc:mod:modena:0007. 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: (Giuseppe Marotta)
If references are entirely missing, you can add them using this form.