Noise-Ridden Lending Cycles

Jochen Guentner and Elena Afanasyeva
Additional contact information
Jochen Guentner: Johannes Kepler University Linz
Elena Afanasyeva: Goethe University Frankfurt
Authors registered in the RePEc Author Service: Jochen Güntner

No 1211, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: In this paper, we use a neoclassical investment model to study the effects of imperfect information on the lending behaviour of financial intermediaries. We start by developing intuition in partial equilibrium. We model a rational financial intermediary with limited knowledge of the current state of the economy. In response to a noise shock, the intermediary lowers the interest rates on risky loans and extends relatively more credit, both of which are unaffected under perfect information. This credit boom is driven by informational rather than financial frictions and accompanied by higher aggregate default and decrease in credit spreads. We further show that these noise-ridden credit booms also survive in the general equilibrium version of the model.

Date: 2017
New Economics Papers: this item is included in nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2017/paper_1211.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:red:sed017:1211

Access Statistics for this paper

More papers in 2017 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().