Economies of scale in banking, indeterminacy, and monetary policy

Scott Dressler ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates economies of scale (ES) in financial intermediation as a source of equilibrium indeterminacy. Consumption in the model can be purchased with currency and deposits, and ES in intermediation implies that deposit costs are decreasing in aggregate deposits. The results suggest that indeterminacy does not depend on a large degree of ES nor a large intermediation sector, but on monetary policy and the determination of nominal interest rates. Monetary policies not targeting nominal rates allow for indeterminacy to arise for any degree of ES, while policies targeting nominal rates eliminates indeterminacy for all degrees of ES.

Keywords: Financial Intermediation; Economies of Scale; Equilibrium Indeterminacy; Monetary Policy (search for similar items in EconPapers)
JEL-codes: C62 E44 E52 (search for similar items in EconPapers)
Date: 2008-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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https://mpra.ub.uni-muenchen.de/8370/1/MPRA_paper_8370.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/11882/1/MPRA_paper_11882.pdf revised version (application/pdf)

Related works:
Journal Article: ECONOMIES OF SCALE IN BANKING, INDETERMINACY, AND MONETARY POLICY (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:8370

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