Title: On the effect of Cournot and Stackelberg competition in the banking sector on the investment cycle

Authors: Eleni Dalla

Addresses: Department of Economics, University of Macedonia, 156 Egnatia Street, Thessaloniki, GR-54636, Greece

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.

Keywords: Cournot game; Stackelberg game; investment cycle; SOA; second order accelerator; monetary policy.

DOI: 10.1504/IJMEF.2018.10009142

International Journal of Monetary Economics and Finance, 2018 Vol.11 No.5, pp.499 - 515

Received: 10 Oct 2016
Accepted: 19 Jul 2017

Published online: 11 Oct 2018 *

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