Funding Shocks and Credit Quality

Enrico Perotti and Magdelena Rola-Janicka
Additional contact information
Magdelena Rola-Janicka: University of Amsterdam

No 19-060/IV, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: Some credit booms, though by no means all, result in financial crises. While risk-taking incentives seem a plausible cause, market participants do not appear to anticipate increasing risk. We show how credit expansions driven by credit supply shocks may be misunderstood as productivity driven, due to the opacity of bank balance sheets. Large funding shocks may induce some intermediaries to scale up speculative lending, distorting price signals. Other banks and firms may misjudge actual profitability, reinforcing the credit expansion. Similarly, at times of low saving supply credit may be inefficiently low, and speculative assets underpriced.

Date: 2019-08-20
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://papers.tinbergen.nl/19060.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20190060

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 ().