Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/260486 
Year of Publication: 
2022
Series/Report no.: 
Queen’s Economics Department Working Paper No. 1481
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
Using micro-level data for the U.S., we provide new evidence-at national and state levels - of a positive (negative) relationship between the standard deviation (coefficient of variation) and the average in bank lending-rate markups. In a quantitative theory consistent with these empirical observations, banks' lending market power is determined in equilibrium and is a novel channel of monetary policy. At low inflation, banks tend to extract higher markups from existing loan customers rather than competing for additional loans. As a result, banking activity need not be welfare-improving if inflation is sufficiently low. This result speaks to concerns regarding market power in the banking sectors of low-inflation countries. Normatively, under a given inflation target, welfare gains arise if a central bank can use additional liquidity-provision (or tax-and-transfer) instruments to offset banks' market-power incentives.
Subjects: 
Banking and Credit
Markups Dispersion
Market Power
Stabilization Policy
Liquidity
JEL: 
E41
E44
E51
E63
G21
Document Type: 
Working Paper

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