Coordinated Effects in Monetary Policy

19 Pages Posted: 29 May 2018 Last revised: 18 Jun 2018

See all articles by Maarten Pieter Schinkel

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute

Date Written: June 1, 2018


Monetary policy affects the cost of capital, and thereby conditions for collusion in loan markets - which in turn influence the transmission of policy rates. Stronger countercyclical interest rate policy responses increase the scope for bank cartels on loan markets by decreasing the critical discount factor. At the same time, they affect the actual discount factor by (partial) pass-through of the marginal cost of banking in loan market rates. When down-turns occur sufficiently often, the combined effect is to increase the space for stable bank cartels. Monetary policy can instead constrain collusion in money markets if crises are infrequent, so that it increases the expected cost of capital. With a short-run policy rate decrease in down-turns that in size relative to the increase in up-turns is inversely related to the frequency of crises occurring, central banks can neutralize their policy's stimulus to bank cartels. Overshooting the mark in crises leaves countercyclical monetary policy conducive to collusion.

Keywords: banking, cartel, monetary policy, stability, interest rate

JEL Classification: D43, E52, G21

Suggested Citation

Schinkel, Maarten Pieter, Coordinated Effects in Monetary Policy (June 1, 2018). Amsterdam Law School Research Paper No. 2018-10, Amsterdam Center for Law & Economics Working Paper No. 2018-03, Available at SSRN: or

Maarten Pieter Schinkel (Contact Author)

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

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