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Relationship lending and the transmission of monetary policy

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  • Hachem, Kinda
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    Abstract

    Repeated interactions allow lenders to uncover private information about their clients, decreasing the informational asymmetry between a borrower and his lender but introducing one between the lender and competing financiers. This paper constructs a credit-based model of production to analyze how learning through lending relationships affects monetary transmission. I examine how monetary policy changes the incentives of borrowers and lenders to engage in relationship lending and how these changes then shape the response of aggregate output. The results demonstrate that relationship lending prevails in equilibrium, smoothes the steady state output profile, and induces less volatile responses to certain monetary shocks.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Monetary Economics.

    Volume (Year): 58 (2011)
    Issue (Month): 6 ()
    Pages: 590-600

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    Handle: RePEc:eee:moneco:v:58:y:2011:i:6:p:590-600

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    Web page: http://www.elsevier.com/locate/inca/505566

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    Cited by:
    1. Massa, Massimo & Zhang, Lei, 2013. "Monetary policy and regional availability of debt financing," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 439-458.

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