Banks’ internalization effect and equilibrium

Xakousti Chrysanthopoulou

MPRA Paper from University Library of Munich, Germany

Abstract: This paper extends the standard New Keynesian model to allow for the presence of large banks, when the cost channel of monetary policy matters. It is shown that once the presence of large banks is taken into account the severity of the firms’ credit constraints, the aggressiveness of the central bank in stabilizing inflation and the degree of loan setting centralization jointly affect the steady state output. Moreover, it turns out that the indeterminacy region is not only shrunk due to the presence of a finite number of large banks but also dependent – among others - on the way in which the central bank and the macroprudential authority systematically behave.

Keywords: Large banks; Cost channel; Indeterminacy; Countercyclical capital buffer (search for similar items in EconPapers)
JEL-codes: E32 E44 E52 (search for similar items in EconPapers)
Date: 2021-08-20
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-isf, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:109275

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