Monetary policy transmission and market power: a general and strategic approach

Inglese

How does the level of competition in the economy affect the transmission of monetary policy? The scope of this work is to provide new intuitions behind this very important relationship with the use of a simple strategic general equilibrium model. The thesis is organized as follows: Chapter 1 is an introduction to the topics, the instruments, the motivations, and the goals of this work. From a discussion about the main monetary policy channels and the impact of market power on firms’ pass-through, the research question is developed by observing that the connection between these two topics is still understudied. After that, the main existing models of general equilibrium with market power and strategic players are discussed. In chapter 2 the economy and the formal model are described. Such original model is a generalization that adds market power to the Dubey&Geanakoplos model (2003). The proposed model is first presented in a very general way, then a more specific and tractable case is studied, and a numerical example is given. In chapter 3, the relationship between market power, prices, and interest rate is illustrated in more detail, using mainly some useful graphical representations. Potential implications for monetary policy are then discussed. The last part of the chapter focuses on the analysis of the pass-through in this more complex framework.