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Market power in banking, countercyclical margins and the international transmission of business cycles
Journal article   Peer reviewed

Market power in banking, countercyclical margins and the international transmission of business cycles

María Pía Olivero
Journal of international economics, v 80(2), pp 292-301
2010
DOI: https://doi.org/10.1016/j.jinteco.2009.07.009
Featured in Collection :   UN Sustainable Development Goals @ Drexel

Abstract

Imperfect competition International RBC
By introducing an imperfectly competitive banking sector into a standard two-country, two-good RBC model with complete asset markets, we study the international transmission of aggregate TFP shocks in an environment with noncompetitive financial intermediation. In this model, price-cost margins in a global loan market are endogenous and countercyclical. As a result, a positive TFP shock in one country spills over to another through a reduction in the global cost of both credit and externally financed investment. The quantitative analysis shows that countercyclical margins on loans play a key role in bringing the predictions of the theory closer to the observed cross-country cyclical co-movements of consumption, employment, investment and output. Recessions are deeper when the cost of credit rises during these economic downturns. Thus, a financial accelerator arises in our framework, unveiling the increased importance of stabilization policies in economies where margins in credit markets are countercyclical.

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29 citations in Web of Science
27 citations in Scopus

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UN Sustainable Development Goals (SDGs)

This publication has contributed to the advancement of the following goals:

#17 Partnerships for the Goals
#8 Decent Work and Economic Growth

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Web of Science research areas
Economics
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