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Credit channel and industrial firms' market power

Marco Mazzoli ()

Heterogeneity and monetary policy from Universita di Modena e Reggio Emilia, Dipartimento di Economia Politica

Abstract: The theoretical model presented here describes the interactions between a concentrated industrial sector and a perfectly competitive financial system where industrial firms can issue bonds or borrow from money from the banks in order to finance their investments. It is shown that an exogenous modification in the degree of concentration in the industrial sector does not only affects the equilibrium level of investments and the price of the final good, but also the transmission mechanism of the monetary policy. This paper also presents a first simplified framework to study the interactions between market power of industrial firms on the credit market and endogeneity of the composition of their external finance (in this context, bank credit and bonds). For this reason one of the main assumptions of the model is the existence of the "credit channel". The endogeneity of the composition of industrial firms' external finance also allows to formalise (although in a very simplified one-period context) a situation of simultaneity between financial and investment decisions for the firms.

Keywords: credit; money multipliers; industrial organization and macroeconomics. (search for similar items in EconPapers)
JEL-codes: L16 E51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ind and nep-mon
Date: 2000-07
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Persistent link: https://EconPapers.repec.org/RePEc:mod:modena:0007

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