Imperfect competition in the banking sector and economic instability

Francesco Carli, Teresa Lloyd-Braga and Leonor Modesto

Journal of Mathematical Economics, 2024, vol. 112, issue C

Abstract: We study the impact of competition in the banking sector on the emergence of endogenous cycles driven by self-fulling volatile expectations. We consider an OLG model with two sectors and two household types: workers, who consume and work when young and save through bank deposits; and entrepreneurs, who seek bank loans to finance current consumption and to invest in a productive technology that transforms the consumption good into capital. When old, entrepreneurs rent this capital to firms, who produce the consumption good using capital and labor. All markets are perfectly competitive, except the loans market where banks compete à la Cournot under free entry and exit.

Keywords: Banking sector; Endogenous fluctuations; Indeterminacy; Imperfect competition (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:112:y:2024:i:c:s0304406824000302

DOI: 10.1016/j.jmateco.2024.102968

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