THE MONOPOLISTIC COMPETITION MODEL AND BANKING THEORY

We show that the Salop [1979] monopolistic competition model can reveal very useful in banking theory. We first recall several of its recent applications to the modeling of competition between bank branches (Chiappori et ali [1992], Grimaud-Rochet [1993a], Matutes-Padilla [1991]). Then we show that it can provide as well simple and robust specifications for die monetary and financial part of a macro-model with an explicit description of deposit, credit and asset markets.