A Theory of Linkage between Monetary Policy and Banking Failure in Developing Countries
This paper presents a model of the banking sector that maximize profit and an individual bank which is a price taker, in a developing country. The interest rate on treasury bills is included in the model to measure monetary policy. The mathematical expression of the probability of banking failure is calculated; And, I show that, in developing countries, a tightening monetary policy may induce efficient banking failure.
|Date of creation:||Dec 2006|
|Date of revision:||Oct 2007|
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- Patrick Bolton & Xavier Freixas, 2006.
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- Marco Arena, 2005. "Bank Failures and Bank Fundamentals: A Comparative Analysis of Latin America and East Asia during the Nineties using Bank-Level Data," Staff Working Papers 05-19, Bank of Canada.
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