Bank Competition, Agency Costs and the Performance of the Monetary Policy

Leonardo Alencar and Marcio Nakane

No 81, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper extends the general equilibrium literature on bank competition in order to evaluate its role on the performance of the monetary policy. A new formulation of a financial contract taking into consideration both market power by banks as well as costly state verification is proposed here. Numerical simulations with the model economy parameterized to the Brazilian case are performed. Two cases are examined: One in which the banking sector is perfectly competitive and the other one when banks have market power. The main conclusions of the paper are the following: (1) Greater competition in the loan market enhances the response of the real economy to an interest rate shock; (2) Increased competition and/or a more efficient verification technology reduce the reaction of both the default rate and of the bank interest spread to an interest rate shock; and (3) The influence of the verification technology in the economy's dynamic response is greater when banks operate under perfect competition.

Date: 2004-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.bcb.gov.br/content/publicacoes/WorkingPaperSeries/wps81.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bcb:wpaper:81

Access Statistics for this paper

More papers in Working Papers Series from Central Bank of Brazil, Research Department
Bibliographic data for series maintained by Rodrigo Barbone Gonzalez ().