Dressler, Scott (2008): Economies of scale in banking, indeterminacy, and monetary policy.
Download (138Kb) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Economies of scale in banking, indeterminacy, and monetary policy|
|Keywords:||Financial Intermediation; Economies of Scale; Equilibrium Indeterminacy; Monetary Policy|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
C - Mathematical and Quantitative Methods > C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling > C62 - Existence and Stability Conditions of Equilibrium
|Depositing User:||Scott Dressler|
|Date Deposited:||21. Apr 2008 17:31|
|Last Modified:||14. Feb 2013 01:19|
Allen J. J., and Liu, Y., "Efficiency and Economies of Scale of Large Canadian Banks," Canadian Journal of Economics 40(1) (February 2007), 225-244.
Azariadis, C. (1993), Intertemporal Macroeconomics, Oxford: Blackwell Publishing.
Benhabib, J. and Farmer, R.E.A., "Indeterminacy and Increasing Return," Journal of Economic Theory 63 (June 1994), 19-41.
Berger, A., and Mester, L., "What Explains the Dramatic Changes in Cost and Profit Performances of the U.S. Banking Industry," Working Paper #1999-13, Board of Governors of the Federal Reserve System (1999).
Blanchard, O. and Simon J., "The Long and Large Decline in U.S. Output Volatility," Brookings Papers on Economic Activity 1 (2001), 135-64.
Bryant, J., "The Paradox of Thrift, Liquidity Preference and Animal Spirits," Econometrica 55 (1987), 1231-1236.
Carlstrom, C., and Fuerst, T., "Real Indeterminacy in Monetary Models with Nominal Interest Rate Distortions," Review of Economic Dynamics 4 (2001), 767-89.
Cooper, R. and Corbae, D., "Financial Collapse: A Lesson from the Great Depression," Journal of Economic Theory 107(2) (December 2002), 159-190.
Hughes, J. and Mester, L., "Bank Capitalization and Cost: Evidence of Scale Economies in Risk Management and Signaling," Review of Economics and Statistics 80 (1998), 314-325.
Meulendyke, A-M., U.S. Monetary Policy and Financial Markets. New York: Federal Reserve Bank of New York (1989).
Taylor, J.B., "Discretion Versus Policy Rules in Practice," Carnegie-Rochester Conference Series on Public Policy 39 (December 1993), 195-214.
Wang, J. C., "Productivity and Economies of Scale in the Production of Bank Service Value Added," Working Paper No. 03-7, Federal Reserve Bank of Boston (2003).
Williamson, S. D., "Increasing Returns to Scale in Financial Intermediation and the Non-Neutrality of Government Policy," Review of Economic Studies 53(5) (October 1986), 863-875.
Available Versions of this Item
- Economies of scale in banking, indeterminacy, and monetary policy. (deposited 21. Apr 2008 17:31) [Currently Displayed]