A note on loan market equilibrium when some borrowers are optimistic

Jijun Niu ()
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Jijun Niu: Simon Fraser University

Economics Bulletin, 2010, vol. 30, issue 2, 1210-1216

Abstract: We study a loan market equilibrium in which some borrowers are optimistic and banks face imperfect competition. We show that the presence of optimistic borrowers reduces the interest rate paid by safe borrowers and increases the interest rate paid by risky borrowers. But it has no net impact on the banks' profits.

Keywords: Banking; optimistic borrowers; imperfect competition (search for similar items in EconPapers)
JEL-codes: D4 G2 (search for similar items in EconPapers)
Date: 2010-05-06
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