User Costs, the Financial Firm, and Monetary and Regulatory Policy

Forthcoming in: Macroeconomic Dynamics

32 Pages Posted: 8 Nov 2018

See all articles by Maksim Isakin

Maksim Isakin

Cleveland State University; University of Calgary

Apostolos Serletis

University of Calgary - Department of Economics

Date Written: October 14, 2018


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 non-monetary 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 Banks; Generalized Barnett Variable Profit Function; Flexible Functional Forms

JEL Classification: E5; G2; D2; C3

Suggested Citation

Isakin, Maksim and Serletis, Apostolos, User Costs, the Financial Firm, and Monetary and Regulatory Policy (October 14, 2018). Forthcoming in: Macroeconomic Dynamics , Available at SSRN: or

Maksim Isakin

Cleveland State University ( email )

Cleveland, OH 44115
United States
216.687.4530 (Phone)

University of Calgary ( email )

University Drive
Calgary, Alberta T2N 1N4

Apostolos Serletis (Contact Author)

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
403 220-4091 (Phone)
403 282-5262 (Fax)

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