A macroeconomic theory of banking oligopoly

Mei Dong, Stella Huangfu, Hongfei Sun and Chenggang Zhou

European Economic Review, 2021, vol. 138, issue C

Abstract: We study the behavior and macroeconomic impact of oligopolistic banks in a tractable environment with micro-foundations for money and banking. In our model, large banks interact strategically as they compete against each other to make loans. Banks face potential liquidity issues as they try to secure deposits as a source of funds. We find that it is welfare-maximizing to have the banking sector as oligopolistic, i.e., to have a small number of large banks. In addition, inflation stimulates bank entry but always reduces welfare.

Keywords: Banking; Oligopoly; Liquidity; Market frictions (search for similar items in EconPapers)
JEL-codes: D83 E43 E44 E51 E52 G21 G32 L26 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: A Macroeconomic Theory of Banking Oligopoly (2020)
Working Paper: A Macroeconomic Theory of Banking Oligopoly (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:138:y:2021:i:c:s0014292121001896

DOI: 10.1016/j.euroecorev.2021.103864

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