Large Banks, Loan Rate Markup, and Monetary Policy

Vincenzo Cuciniello and Federico Signoretti

International Journal of Central Banking, 2015, vol. 11, issue 3, 141-177

Abstract: A large body of empirical evidence suggests that bank loan margins are countercyclical. We develop a model where a countercyclical spread arises due to the strategic interaction between large intermediaries—i.e., banks whose individual behavior affects macroeconomic outcomes–and the central bank. We uncover a new mechanism related to market power of banks which amplifies the impact of monetary and technology shocks on the real economy. The level of the spread is positively connected to the level of entrepreneurs’ leverage, and the amplification effect is stronger the more aggressive the central bank’s response to inflation.

JEL-codes: E32 E44 E52 G21 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Large banks, loan rate markup and monetary policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2015:q:3:a:4

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