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Market concentration, credit institutions and the macroeconomy

By Marco Mazzoli

Abstract

Chapter one\ud is\ud a\ud brief discussion\ud of a few\ud methodological\ud premises.\ud The second chapter\ud is\ud meant to show\ud (by\ud means of a theoretical\ud analysis)\ud the effective macroeconomic relevance of oligopsony\ud in the market\ud for\ud credit.\ud This is done by\ud using two models. In the first\ud (simplified) model -\ud where the behaviour\ud of the supply\ud function\ud of\ud bank credit to industrial firms is\ud captured by\ud a\ud "Cobb-Douglas"\ud reduced form\ud -\ud an exogenous\ud decrease in the market power of the\ud industrial firms on the credit market\ud increases the effectiveness of\ud monetary policy.\ud In the second model, where the banking\ud sector\ud behaves consistently with the portfolio allocation theory, the results\ud are weakened:\ud it is\ud still true that,\ud apart from\ud extreme cases, \ud reductions\ud in the market power of industrial firms in the credit\ud markets\ud increase the macroeconomic level\ud of\ud investment\ud and\ud affect the monetary policy multiplier,\ud but the sign of the latter effect\ud becomes ambiguous and\ud depends\ud on the\ud analytical forms\ud of the\ud behavioural functions. Both models,\ud however,\ud show that\ud modifications of\ud the market structure\ud in the banking\ud sector have, in\ud general,\ud macroeconomic effects.\ud The third chapter suggests an\ud interpretation\ud of the phenomenon of\ud “securitization" on the basis\ud of Williamson's [1985]\ud contractual\ud framework. It is pointed out that in\ud securitized financial\ud systems\ud substitutability\ud between securities and intermediated\ud credit\ud is\ud an\ud empirically relevant phenomenon that\ud makes the demand for bank credit\ud to industry more unstable\ud than the\ud supply. For this purpose, a\ud comparative econometric analysis\ud has been\ud performed with\ud British and\ud German data, because the two countries had (apart from the\ud phenomenon of securitization) many similarities in their regulatory\ud systems, as well as\ud in the degree\ud of concentration of their banking sectors\ud and\ud in the magnitude of the respective economies, at\ud least\ud until German Unification.\ud The analytical\ud form\ud of the bank\ud credit supply function is based on\ud the "credit view".\ud This specific aspect of the behaviour\ud of\ud banks is\ud analyzed\ud in Chapter 4,\ud which contains an empirical analysis\ud (performed with\ud Italian data)\ud of the free liquidity\ud ratio\ud for\ud commercial\ud banks, interpreted\ud on the basis\ud of the recent\ud literature on\ud investment decisions\ud under conditions of\ud investments'\ud irreversibility and uncertainty.\ud Chapters 5\ud and\ud 6\ud examine the interactions between industrial firms\ud and\ud financial intermediaries in\ud a\ud "microeconomic"\ud perspective. The\ud focus is\ud on the investment decision,\ud and one of the main\ud concerns\ud is to perform a theoretical and empirical analysis on the\ud connections\ud between risk, cost of capital and\ud investment decisions.\ud Chapter 5 contains an empirical analysis of the firms'\ud investment\ud decision based\ud on a theoretical\ud model where the decisions\ud concerning\ud investment and the firms' financial\ud structure are\ud taken\ud simultaneously.\ud The results are not conclusive, in\ud part\ud because of the\ud complexity of the causal links\ud among market structure,\ud investment and\ud financing decisions\ud suggested by various\ud contributions\ud in finance\ud as well as in industrial\ud economics.\ud The study of such causal\ud links is\ud precisely the concern of\ud Chapter 6,\ud which contains an analysis of the implications\ud of a\ud few\ud alternative\ud hypotheses (based\ud on precise results of the industrial\ud economics\ud literature)\ud on the link\ud existing between the cost of capital,\ud the market structure and the profit margins

Topics: HB
OAI identifier: oai:wrap.warwick.ac.uk:3505

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