VGSF - WU Vienna - LC

Toni Whited, University of Michigan, Ross School of Business

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Toni Whited from the Uni­versity of Michigan, Ross School of Busi­ness to present her re­search pa­per.
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Bank Mar­ket Power and Mon­et­ary Policy Trans­mis­sion: Evid­ence from a Struc­tural Es­tim­a­tion

We quan­tify the im­pact of bank mar­ket power on the pass-­through of mon­et­ary policy to bor­row­ers. To this end, we es­tim­ate a dy­namic bank­ing model in which mon­et­ary tight­en­ing in­creases banks’ fund­ing costs. Given their mar­ket power, banks op­tim­ally choose how much of a rate in­crease to pass on to bor­row­ers. In the model, banks are sub­ject to cap­ital and re­serve reg­u­la­tions, which also in­flu­ence the de­gree of pass-­through. Com­pared with the con­ven­tional reg­u­la­tion-­based chan­nels, we find that in the two most re­cent dec­ades, bank mar­ket power ex­plains a sig­ni­fic­ant por­tion of mon­et­ary trans­mis­sion. The quant­it­at­ive ef­fect is com­par­able in mag­nitude to the bank cap­ital chan­nel. In ad­di­tion, the mar­ket power chan­nel in­ter­acts with the bank cap­ital chan­nel, and this in­ter­ac­tion can re­verse the ef­fect of mon­et­ary policy when the Fed­eral Funds rate is low.

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