Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications
Nicolas Figueroa (),
Oksana Leukhina () and
No 2018-18, Working Papers from Federal Reserve Bank of St. Louis
Our goal is to elucidate the interaction of banks' screening effort and strategic information production in loan-backed asset markets using a general equilibrium framework. Asset quality is unobserved by investors, but banks may purchase error-prone ratings. The premium paid on highly rated assets emerges as the main determinant of banks' screening effort. The fact that rating strategies reflect banks' private information about asset quality helps keep this premium high. Conventional regulatory policies interfere with this decision margin, thereby reducing signaling value of high ratings and exacerbating the credit misallocation problem. We propose a tax/subsidy scheme that induces efficiency.
Keywords: credit misallocation; information asymmetry; information production; screening effort; rising asset complexity; mandatory rating; mandatory ratings disclosure (search for similar items in EconPapers)
JEL-codes: G01 G24 G28 (search for similar items in EconPapers)
Date: 2018-09-01, Revised 2019-12-05
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Forthcoming in Journal of Monetary Economics
Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2018/2018-018.pdf Full text (application/pdf)
Journal Article: Imperfect information transmission from banks to investors: Macroeconomic implications (2021)
Working Paper: Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2018-018
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by ().