The role of interest rate taxes in credit markets with divisible projects and asymmetric information

1989 ◽  
Vol 39 (1) ◽  
pp. 33-44 ◽  
Author(s):  
David De Meza ◽  
David C. Webb
Keyword(s):  
Interest Rate ◽  
Asymmetric Information ◽  
Credit Markets

Asymmetric Information and the Transmission Mechanism of Monetary Policy

2007 ◽  
Vol 8 (3) ◽  
pp. 428-446 ◽  
Author(s):  
Ulrike Neyer
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Asymmetric Information ◽  
Credit Markets ◽  
Transmission Mechanism ◽  
Monetary Transmission ◽  
Credit Channel ◽  
Absolute Value ◽  
Monetary Transmission Mechanism ◽  
External Finance

Abstract This paper analyses the consequences of asymmetric information in credit markets for the monetary transmission mechanism. It shows that asymmetric information can not only reinforce but can also weaken or overcompensate the effects of the standard interest rate channel. Crucial is that informational problems lead to an external finance premium that can be positive or negative for marginal entrepreneurs. Tight money may lead to an increase in the absolute value of this premium, implying that there is a credit channel of monetary policy, but its working direction is ambiguous.

A Tale of “Benevolent” Governments: Private Credit Markets, Public Finance, and the Role of Jewish Lenders in Medieval and Renaissance Italy

2000 ◽  
Vol 60 (1) ◽  
pp. 164-189 ◽  
Author(s):  
Maristella Botticini
Keyword(s):  
Public Finance ◽  
Interest Rate ◽  
Credit Markets ◽  
Working Capital ◽  
The Public ◽  
Private Credit ◽  
Renaissance Italy ◽  
The Interest Rate ◽  
The Impact

This article illustrates the impact of Jewish lenders on private credit markets and public finance in medieval and Renaissance Italian towns. In Tuscan private credit markets, Jewish lending helped households to smooth consumption, buy working capital, and provide dowries for daughters. Jewish lenders also helped the public fmances of the communes in which they resided. This article shows that public-finance considerations affected the choice of the interest-rate ceiling Jews were allowed to charge. In many instances, the communes raised the interest-rate ceiling for Jewish lenders in order to tax or borrow the proceeds.

scholarly journals The strategic response of banks to macroprudential policies: Evidence from mortgage stress tests in Canada

2021 ◽  
Author(s):  
Robert Clark ◽  
Shaoteng Li
Keyword(s):  
Interest Rate ◽  
Credit Markets ◽  
Mortgage Market ◽  
Financial Intermediaries ◽  
Stress Tests ◽  
Difference In Differences ◽  
Strategic Response ◽  
Macroprudential Policies ◽  
The Interest Rate

Abstract Following the crisis, macroprudential regulations targeting mortgage-market vulnerabilities were widely adopted, their success often relying on the response of financial intermediaries. We provide evidence from Canada suggesting banks may have behaved strategically to limit the effectiveness of recently implemented mortgage stress tests. Before implementation, borrowers had to prove they could make mortgage payments based on the interest rate specified in the contract. The new tests require borrowers to show they can afford payments based on a typically higher qualifying rate, derived from the mode of 5-year rates posted by the six largest banks. The government’s objective was to cool credit markets, but, since many mortgages are government-insured, the big banks’ interests were not aligned. We find evidence of rate manipulation using a difference-in-differences approach comparing changes in spreads for 5-year mortgages with 3-year spreads, unaffected by the policy. The qualifying rates were lowered encouraging continued borrowing, muting the tests’ impact.

scholarly journals Welfare Consequences of Information Aggregation and Optimal Market Size

2017 ◽  
Vol 9 (4) ◽  
pp. 303-323 ◽  
Author(s):  
Kei Kawakami
Keyword(s):  
Asymmetric Information ◽  
Risk Aversion ◽  
Risk Sharing ◽  
Information Aggregation ◽  
Market Size ◽  
Positive Externality ◽  
Trading Model ◽  
Welfare Implications ◽  
The Right

We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing role of markets, which creates a positive externality amongst traders, against (ii) the information-aggregation role of prices, which leads to prices that are more correlated with security payoffs, thereby undermining the hedging function of markets. Our analysis indicates that a market with infinitely many traders may not be the right welfare benchmark in the presence of risk aversion and information aggregation. (JEL D43, D62, D82, D83)

scholarly journals Does the Interest Rate Form Business Cycle?

2019 ◽  
Vol 4 (1) ◽  
pp. 29-34
Author(s):  
Bijan Bidabad ◽  
Abul Hassan
Keyword(s):  
Interest Rate ◽  
Business Cycle ◽  
Interest Rates ◽  
Banking System ◽  
Real Economy ◽  
Short Term ◽  
The Usa ◽  
Rate Form ◽  
The Interest Rate

Dynamic structural behavior of depositor, bank and borrower and the role of banks in forming business cycle are investigated. We test the hypothesis that does banks behavior make oscillations in the economy through the interest rate. By dichotomizing banking activities into two markets of deposit and loan, we show that these two markets have non-synchronized structures, and this is why the money sector fluctuation starts. As a result, the fluctuation is transmitted to the real economy through saving and investment functions. Empirical results assert that in the USA, the banking system creates fluctuations in the money sector and real economy as well through short-term interest rates

Developing-country resource extraction with asymmetric information and sovereign debt: a theoretical analysis

1997 ◽  
Vol 2 (3) ◽  
pp. 265-289
Author(s):  
JON STRAND
Keyword(s):  
Growth Rate ◽  
Interest Rate ◽  
Asymmetric Information ◽  
Developing Country ◽  
Sovereign Debt ◽  
Resource Extraction ◽  
Probability Of Default ◽  
Rapid Extraction ◽  
The Interest Rate ◽  
Period Model

We consider a two-period model of an indebted developing country endowed with a natural resource whose extraction causes negative global externalities, where the country may borrow in period one and there is asymmetric information about its willingness to service its loans. We show that when the resource is large, the interest rate on new borrowing equals the resource growth rate. A greater initial debt level then leads to reduced new borrowing and more rapid extraction. An outside 'donor' may affect the resource extraction of the country. Donor schemes that tie debt reduction to postponing or abstaining from extraction of the resource are more powerful than non-conditional schemes in reducing the extraction rate for governments that actually repay, but may in some cases lead to a greater probability of default through increased debt. While conditional schemes generally are potentially Pareto-superior to non-conditional ones, the welfare of the borrowing country is higher with non-conditional schemes.

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