Quantity versus Price Bank Competition and Macroeconomic Performance Given Bank Concentration

Abstract

Abstract This paper elaborates upon the following three theses: First, given bank sector concentration, the other aspect of this sector that matters for the overall economy is that of price vs. quantity competition by itself. Second, the macroeconomic performance of price competition is superior, enhancing the tax base and bank profit, capitalizing additionally the banks upon public debt induced instability, which the policymaker can minimize through Taylor rule. And, third, the ultimate link between banking competition and macroeconomic performance is the bank regulation shaping bank operation in accordance with the financial needs of fiscal policy.