Banking Competition, Collateral Constraints, and Optimal Monetary Policy
We analyze optimal monetary policy in a model with two distinct financial frictions: monopolistically competitive banks that charge endogenous lending spreads, and collateral constraints. We show that welfare maximization is equivalent to stabilization of four goals: inflation, output gap, the "...
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| Veröffentlicht in: | Journal of money, credit and banking credit and banking, 2013-12, Vol.45 (s2), p.87-125 |
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| container_end_page | 125 |
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| container_issue | s2 |
| container_start_page | 87 |
| container_title | Journal of money, credit and banking |
| container_volume | 45 |
| creator | ANDRÉS, JAVIER ARCE, ÓSCAR THOMAS, CARLOS |
| description | We analyze optimal monetary policy in a model with two distinct financial frictions: monopolistically competitive banks that charge endogenous lending spreads, and collateral constraints. We show that welfare maximization is equivalent to stabilization of four goals: inflation, output gap, the "consumption gap" between borrowers and savers, and a "housing gap" that measures the distortion in the distribution of the collateralizable asset between both groups. Collateral constraints create a trade-off between stabilization goals. Following both productivity and financial shocks, and relative to strict inflation targeting, the optimal policy implies sharper movements in the policy rate, aimed primarily at reducing fluctuations in asset prices and hence in borrowers' net worth. The policy trade-offs become amplified as banking competition increases, due to the fall in lending spreads and the resulting increase in borrowers' leverage. |
| doi_str_mv | 10.1111/jmcb.12072 |
| format | Article |
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We show that welfare maximization is equivalent to stabilization of four goals: inflation, output gap, the "consumption gap" between borrowers and savers, and a "housing gap" that measures the distortion in the distribution of the collateralizable asset between both groups. Collateral constraints create a trade-off between stabilization goals. Following both productivity and financial shocks, and relative to strict inflation targeting, the optimal policy implies sharper movements in the policy rate, aimed primarily at reducing fluctuations in asset prices and hence in borrowers' net worth. The policy trade-offs become amplified as banking competition increases, due to the fall in lending spreads and the resulting increase in borrowers' leverage.</description><subject>Bank credit</subject><subject>Bank loans</subject><subject>banking competition</subject><subject>Banks</subject><subject>Collateral</subject><subject>collateral constraints</subject><subject>Competition between banks</subject><subject>Competitiveness</subject><subject>E32</subject><subject>E52</subject><subject>Economic competition</subject><subject>Economic fluctuations</subject><subject>Economic inflation</subject><subject>Economic stabilization</subject><subject>Entrepreneurs</subject><subject>G10</subject><subject>G21</subject><subject>Housing</subject><subject>Inflation targeting</subject><subject>lending spreads</subject><subject>linear-quadratic method</subject><subject>Loans</subject><subject>Monetary economics</subject><subject>Monetary policy</subject><subject>Monopolistic competition</subject><subject>Productivity growth</subject><subject>Studies</subject><subject>Welfare losses</subject><issn>0022-2879</issn><issn>1538-4616</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2013</creationdate><recordtype>article</recordtype><recordid>eNp9kEtLAzEUhYMoWKsb90LBjUhH85rMZGkHbRWfoHQZ0jQjqdOkJinaf2_qaBcuzCYJ5zuXcw8AhwieoXTOZ3M1OUMYFngLdFBOyowyxLZBB0KMM1wWfBfshTCDEPKcog4YDaR9M_a1V7n5QkcTjbP99GkaGbWXTXraEL00NoZ-T9pp72ERzTwJd87qKP2q9-gao1b7YKeWTdAHP3cXvFxdPlej7PZheF1d3GaKcoozvQ4iGWZKlaiop_WEKz2tuZzokvMiR1gqCRUpNVM0xeUSlRPGCkKJ4ryGpAtO2rkL796XOkQxN0HplNdqtwwCUVbmrEQEJ_T4DzpzS29TukQVjJKcYpao05ZS3oXgdS0WPi3oVwJBsS5VrEsV36UmGLXwh2n06h9S3NxVg1_PUeuZhej8xkMxxxDSdYCs1U2I-nOjS_8m0t5FLsb3Q1E9kvFVBZ9EQb4AFSCQ9g</recordid><startdate>201312</startdate><enddate>201312</enddate><creator>ANDRÉS, JAVIER</creator><creator>ARCE, ÓSCAR</creator><creator>THOMAS, CARLOS</creator><general>Blackwell Publishing Ltd</general><general>Wiley Subscription Services</general><general>Ohio State University Press</general><scope>BSCLL</scope><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope></search><sort><creationdate>201312</creationdate><title>Banking Competition, Collateral Constraints, and Optimal Monetary Policy</title><author>ANDRÉS, JAVIER ; ARCE, ÓSCAR ; THOMAS, CARLOS</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c4942-e0022a626cc817fdfb9cedf9abe8997512aca0c38e6c48799a18b667343c99f03</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2013</creationdate><topic>Bank credit</topic><topic>Bank loans</topic><topic>banking competition</topic><topic>Banks</topic><topic>Collateral</topic><topic>collateral constraints</topic><topic>Competition between banks</topic><topic>Competitiveness</topic><topic>E32</topic><topic>E52</topic><topic>Economic competition</topic><topic>Economic fluctuations</topic><topic>Economic inflation</topic><topic>Economic stabilization</topic><topic>Entrepreneurs</topic><topic>G10</topic><topic>G21</topic><topic>Housing</topic><topic>Inflation targeting</topic><topic>lending spreads</topic><topic>linear-quadratic method</topic><topic>Loans</topic><topic>Monetary economics</topic><topic>Monetary policy</topic><topic>Monopolistic competition</topic><topic>Productivity growth</topic><topic>Studies</topic><topic>Welfare losses</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>ANDRÉS, JAVIER</creatorcontrib><creatorcontrib>ARCE, ÓSCAR</creatorcontrib><creatorcontrib>THOMAS, CARLOS</creatorcontrib><collection>Istex</collection><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Journal of money, credit and banking</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>ANDRÉS, JAVIER</au><au>ARCE, ÓSCAR</au><au>THOMAS, CARLOS</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Banking Competition, Collateral Constraints, and Optimal Monetary Policy</atitle><jtitle>Journal of money, credit and banking</jtitle><addtitle>Journal of Money, Credit and Banking</addtitle><date>2013-12</date><risdate>2013</risdate><volume>45</volume><issue>s2</issue><spage>87</spage><epage>125</epage><pages>87-125</pages><issn>0022-2879</issn><eissn>1538-4616</eissn><coden>JMCBBT</coden><abstract>We analyze optimal monetary policy in a model with two distinct financial frictions: monopolistically competitive banks that charge endogenous lending spreads, and collateral constraints. 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| source | Wiley Online Library Journals Frontfile Complete; Jstor Complete Legacy |
| subjects | Bank credit Bank loans banking competition Banks Collateral collateral constraints Competition between banks Competitiveness E32 E52 Economic competition Economic fluctuations Economic inflation Economic stabilization Entrepreneurs G10 G21 Housing Inflation targeting lending spreads linear-quadratic method Loans Monetary economics Monetary policy Monopolistic competition Productivity growth Studies Welfare losses |
| title | Banking Competition, Collateral Constraints, and Optimal Monetary Policy |
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