PhD Seminar (Econ)
Date & time
The paper designs a small open-economy model with an oligopolistic banking sector. The interest mark-up for loans depends on the number of banks in operation. Entry of banks to the market is determined endogenously. Using Australian data, the model implies a countercyclical mark-up rate for bank loans, and one that varies inversely with the number of banks. The market power of banks amplifies business cycles in some cases. Imperfect competition in the banking sector has a distinct shock propagation mechanism that is worthy of serious consideration by economists and policymakers.