Advanced Search
MyIDEAS: Login

Information Asymmetries and an Endogenous Productivity Reversion Mechanism

Contents:

Author Info

  • Nicolás Figueroa
  • Oksana Leukhina

    ()

Abstract

Several empirical studies suggest that the systematic behavior of lending standards, with laxer (tighter) standards applied during expansions (recessions) are responsible for reverting trends in aggregate productivity. We build a dynamic screening model with informational asymmetries in credit markets that rationalizes the observed dependence of lending standards on economic fundamentals and generates reversion of output and productivity trends via the lending standards channel. When the capital stock, which evolves endogenously, is high, liquidity is high for all types of producers, allowing even the unproductive type to meet the early payments on the loan, and thus making signals about entrepreneurs’ type, inferred from such payments, less informative. The early payment required to accomplish screening out the unproductive types thus rises. Because the early payment hurts productive entrepreneurs by restricting their investments, competition among lenders results in the selection of contracts with no screening. Low productivity entrepreneurs enter production along with productive types, the composition effect setting off a recession. The opposite happens for low enough values of capital. JEL Codes: E32, E44, D24.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120090818152745.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 264.

as in new window
Length:
Date of creation: 2009
Date of revision:
Handle: RePEc:edj:ceauch:264

Contact details of provider:
Web page: http://www.dii.uchile.cl/cea/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Asea, P.K. & Blomberg, S.B., 1997. "Lending Cycles," Papers 97-01, Wellesley College - Department of Economics.
  2. Allen N. Berger & Gregory F. Udell, 2003. "The institutional memory hypothesis and the procyclicality of bank lending behaviour," BIS Working Papers 125, Bank for International Settlements.
  3. Suarez, Javier & Sussman, Oren, 1997. "Endogenous Cycles in a Stiglitz-Weiss Economy," Journal of Economic Theory, Elsevier, vol. 76(1), pages 47-71, September.
  4. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  5. Giovanni Dell'Ariccia & Robert Marquez, 2006. "Lending Booms and Lending Standards," Journal of Finance, American Finance Association, vol. 61(5), pages 2511-2546, October.
  6. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  7. Carlstrom, Charles T & Fuerst, Timothy S, 1997. "Agency Costs, Net Worth, and Business Fluctuations: A Computable General Equilibrium Analysis," American Economic Review, American Economic Association, vol. 87(5), pages 893-910, December.
  8. Rampini, Adriano A., 2004. "Entrepreneurial activity, risk, and the business cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 555-573, April.
  9. Reichlin, Pietro & Siconolfi, Paolo, 2000. "Optimal Debt Contracts and Moral Hazard Along the Business Cycle," CEPR Discussion Papers 2351, C.E.P.R. Discussion Papers.
  10. Allen N. Berger, 2003. "The institutional memory hypothesis and the procyclicality on bank lending behavior," Proceedings 845, Federal Reserve Bank of Chicago.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:edj:ceauch:264. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.