Seminar on Economics: Money and Imperfectly Competitive Credit

Speaker: Dr. Ieng Man NG, UM Macao Fellow, Department of Economics, University of Macau

Date:24 Jan 2024 (Wed)

Time:14:00 – 15:15

Language: English

Venue: E21B-G002

Abstract: We develop a monetary economy in which banking market power and its associated dispersion in deposit and loan rates are equilibrium phenomena. The theory accounts for the dispersion of loan and deposit interest rates, and incomplete pass-through of monetary policy to them. This is a distinguishing feature of our search-based theory of market power and is consistent with new micro-level evidence on U.S. consumer loans and deposits. Imperfect pricing competition among banks also creates a novel channel from monetary policy to interest rate spreads, and thus, to real consumption and welfare. The overall welfare effect of financial intermediation depends on the interplay between banking market power, individual liquidity risk, and monetary policy. Under a given inflation target, welfare gains arise if a central bank uses state-contingent monetary injections to reduce lenders’ market power in response to fluctuations in aggregate demand.