A Macroeconomic Theory of Banking Oligopoly

Mei Dong, Stella Huangfu and Hongfei Sun

No 2020-12, Working Papers from University of Sydney, School of Economics

Abstract: We study the behavior and macroeconomic impact of oligopolistic banks in a tractable environment with micro-foundations for money and banking. Our model features oligopolistic banks, which resembles the structure of the banking sector observed in most advanced economies. Banks interact strategically where they compete against each other in terms of the volume of loans to make. 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, moderate inflation improves welfare because it helps to ease congestion in the banking sector.

Keywords: banking; oligopoly; liquidity; market frictions (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-fdg, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A macroeconomic theory of banking oligopoly (2021)
Working Paper: A Macroeconomic Theory of Banking Oligopoly (2017)
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