On the effect of Cournot and Stackelberg competition in the banking sector on the investment cycle
by Eleni Dalla
International Journal of Monetary Economics and Finance (IJMEF), Vol. 11, No. 5, 2018

Abstract: Following the industrial organisation approach to banking, we investigate the effects of banking conduct on the investment cycle. To achieve this, we extend the second order accelerator (SOA) model in discrete time, introducing the interest rate on loans. To the extent that the banking sector is concerned, we consider two different types of banking conduct: a Cournot game where the banks make their decision on the quantities of loans and deposits simultaneously, and a Stackelberg game in which they decide over these amounts sequentially. In addition, we follow a simulation process to confirm the dynamic properties of our theoretical findings and examine the effects of monetary policy on capital over time.

Online publication date: Mon, 22-Oct-2018

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