CRIME, MONEY LAUNDERING, AND CREDIT MARKETS: CAN USURY EXIST AT THE ZERO LOWER BOUND?

Raffaella Barone and Donato Masciandaro ()

No 1761, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: In advanced economies, the recent collapse of interest rates to the Zero Lower Bound (ZLB) has triggered a series of research questions on how to navigate the new zero-interest credit environment. Focusing on illegal markets, it is possible to explain why usury still remains widespread after the legal nominal interest rate has fallen to zero. If the lender is a criminal agent with money-laundering aims, the ZLB isn’t an obstacle to design and implement usury contracts. Using a dynamic model of usury for a loan having a variable interest rate and the value of the borrowing firm itself as collateral it is possible to show that notwithstanding the ZLB the criminal actor can be able achieve the money laundering purpose by expropriating the borrower of his/her collateral.

Keywords: OPTIMAL CURRENCY AREA; EUROPEAN MONETARY INTEGRATION; MONETARY POLICY; POLITICAL ECONOMICS (search for similar items in EconPapers)
JEL-codes: G18 K14 K40 K42 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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