Abstract

We generalize the Model of Andries and Billon (2010) by allowing for a general type of consumer`s preferences that allows the presence of prudent behavior. Having precautionary savings changes the model's implication that the existence of public banks diminishes the effectiveness of monetary policy. Indeed, the new setup shows that the existence of public banks may increase or decrease the effect of monetary policy on the level of loan supply depending upon the degree of relative risk aversion.