Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70631
Authors: 
Mandelman, Federico S.
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2006-17b
Abstract: 
This study shows that the presence of imperfect competition in the banking system propagates external shocks and amplifies the business cycle. Strategic limit pricing, aimed at protecting retail niches from potential competitors, generates countercyclical bank markups. Markup increments during recessions directly increase borrowing costs for firms and indirectly damage the financial position of firms’ balance sheets, increasing lenders’ risk perception. I use Bayesian techniques and data from Argentina to show that the inclusion of monopolistic banking improves the fit of the New Keynesian small open economy model.
Subjects: 
small open economy
countercylical bank markups
exchange rate regimes
Bayesian estimation
balance sheet effect
JEL: 
E32
F41
G15
G21
L12
Document Type: 
Working Paper

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