We investigate the effects of banks’ operating costs on allocations and welfare in a low interest rate environment. We introduce an explicit production function for banks in a microfounded model where banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium, this generates a spread between interest rates on loans and deposits, which reflects the underlying monetary policy and the efficiency of financial intermediation. In a deflation or low-inflation environment, equilibrium deposits yield zero returns. Hence, banks soak up labor resources to offer deposits that do not outperform idle balances, thus reducing aggregate efficiency.
Titolo: | Monetary Equilibrium and the Cost of Banking Activity | |
Autore/i: | Boel P.; G. Camera | |
Autore/i Unibo: | ||
Anno: | 2020 | |
Rivista: | ||
Digital Object Identifier (DOI): | http://dx.doi.org/10.1111/jmcb.12676 | |
Abstract: | We investigate the effects of banks’ operating costs on allocations and welfare in a low interest rate environment. We introduce an explicit production function for banks in a microfounded model where banks employ labor resources, hired on a competitive market, to run their operations. In equilibrium, this generates a spread between interest rates on loans and deposits, which reflects the underlying monetary policy and the efficiency of financial intermediation. In a deflation or low-inflation environment, equilibrium deposits yield zero returns. Hence, banks soak up labor resources to offer deposits that do not outperform idle balances, thus reducing aggregate efficiency. | |
Data stato definitivo: | 2021-02-13T23:22:29Z | |
Appare nelle tipologie: | 1.01 Articolo in rivista |