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USER COSTS, THE FINANCIAL FIRM, AND MONETARY AND REGULATORY POLICY

Published online by Cambridge University Press:  22 February 2019

Maksim Isakin  and
Apostolos Serletis
Maksim Isakin
Affiliation:
Cleveland State University
Apostolos Serletis*
Affiliation:
University of Calgary
*
Address correspondence to: Apostolos Serletis, Department of Economics, University of Calgary, Calgary, Alberta, T2N 1N4, Canada. e-mail: [email protected]. Phone: (403) 220-4092. Fax: (403) 282-5262.
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Abstract

We investigate how key monetary policy instruments and financial regulation affect the banking firm. We take the user-cost approach to the construction of prices for financial services and use quarterly data on the U.S. commercial banking sector, over the period from 1992 to 2016, obtained from the Federal Deposit Insurance Corporation. We use the symmetric generalized Barnett variable profit function to derive demands for and supplies of monetary and nonmonetary goods and provide evidence consistent with neoclassical microeconomic theory. We find that the compensated price elasticities of banking technology are small in magnitude. Yet a hypothetical policy experiment shows that even small changes in the holding costs of financial goods can result in significant changes in user costs and the quantities demanded and supplied.

Keywords

Commercial BanksGeneralized Barnett Variable Profit FunctionFlexible Functional Forms
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 6 , September 2020 , pp. 1547 - 1573
Copyright
© 2019 Cambridge University Press

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