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Entrepreneurial Moral Hazard and Bank Monitoring: A Model of the Credit Channel

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  • Repullo,R.
  • Suarez,J.

Abstract

This paper considers a model of firms' financing based on the existence of a moral hazard problem in the choice of investment projects by a heterogeneous population of entrepreneurs. Two alternative ways of funding these projects, called unmonitored (or market) and monitored (or bank) lending, are analyzed.

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Bibliographic Info

Paper provided by Centro de Estudios Monetarios Y Financieros- in its series Papers with number 9604.

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Length: 42 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:fth:cemfdt:9604

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Postal: Centro de Estudios Monetarios Y Financieros. Casado del Alisal, 5-28014 Madrid, Spain.
Phone: 914290551
Fax: 914291056
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Web page: http://www.cemfi.es/
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Keywords: MODELS; MORAL HAZARD; BANKS; MONEY; MONETARY POLICY;

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References

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  1. Benjamin M. Friedman & Kenneth N. Kuttner, 1991. "Why Does the Paper-Bill Spread Predict Real Economic Activity?," NBER Working Papers 3879, National Bureau of Economic Research, Inc.
  2. Yosha Oved, 1995. "Information Disclosure Costs and the Choice of Financing Source," Journal of Financial Intermediation, Elsevier, vol. 4(1), pages 3-20, January.
  3. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters, in: Monetary Policy, pages 221-261 National Bureau of Economic Research, Inc.
  4. Mark Gertler & Simon Gilchrist, 1993. "The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence," Finance and Economics Discussion Series 93-5, Board of Governors of the Federal Reserve System (U.S.).
  5. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  6. Ben S. Bernanke & Alan S. Blinder, 1988. "Credit, Money, and Aggregate Demand," NBER Working Papers 2534, National Bureau of Economic Research, Inc.
  7. Anil K. Kashyap & Jeremy C. Stein & David W. Wilcox, 1991. "Monetary policy and credit conditions: evidence from the composition of external finance," Finance and Economics Discussion Series 154, Board of Governors of the Federal Reserve System (U.S.).
  8. Mark L. Gertler, 1988. "Financial Structure and Aggregate Economic Activity: An Overview," NBER Working Papers 2559, National Bureau of Economic Research, Inc.
  9. Benjamin M. Friedman & Kenneth N. Kuttner, 1993. "Economic activity and the short-term credit markets: an analysis of prices and quantities," Working Paper Series, Macroeconomic Issues 93-17, Federal Reserve Bank of Chicago.
  10. Repullo, Rafael & Suarez, Javier, 1998. "Monitoring, Liquidation, and Security Design," Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 163-87.
  11. Bernanke, Ben & Gertler, Mark & Gilchrist, Simon, 1996. "The Financial Accelerator and the Flight to Quality," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 1-15, February.
  12. Holmström, Bengt & Tirole, Jean, 1994. "Financial Intermediation, Loanable Funds and the Real Sector," IDEI Working Papers 40, Institut d'Économie Industrielle (IDEI), Toulouse.
  13. Anil K Kashyap & Jeremy C. Stein, 1994. "The Impact of Monetary Policy on Bank Balance Sheets," NBER Working Papers 4821, National Bureau of Economic Research, Inc.
  14. Gertler, Mark & Gilchrist, Simon, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 309-40, May.
  15. Suarez,J. & Sussman,O., 1995. "Endogenous Cycles in a Stiglitz-Weiss Economy," Papers 9518, Centro de Estudios Monetarios Y Financieros-.
  16. 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.
  17. Bhattacharya Sudipto & Chiesa Gabriella, 1995. "Proprietary Information, Financial Intermediation, and Research Incentives," Journal of Financial Intermediation, Elsevier, vol. 4(4), pages 328-357, October.
  18. Oliner, Stephen D & Rudebusch, Glenn D, 1996. "Monetary Policy and Credit Conditions: Evidence from the Composition of External Finance: Comment," American Economic Review, American Economic Association, vol. 86(1), pages 300-309, March.
  19. Lang, William W. & Nakamura, Leonard I., 1995. "'Flight to quality' in banking and economic activity," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 145-164, August.
  20. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  21. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
  22. Joe Peek & Eric S. Rosengren, 1995. "Is bank lending important for the transmission of monetary policy: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 1-14.
  23. Stephen D. Oliner & Glenn D. Rudebusch, 1994. "Is there a broad credit channel for monetary policy?," Working Paper Series / Economic Activity Section 146, Board of Governors of the Federal Reserve System (U.S.).
  24. Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
  25. Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
  26. Christina D. Romer & David H. Romer, 1990. "New Evidence on the Monetary Transmission Mechanism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 149-214.
  27. Stock, J.H. & Watson, M.W., 1989. "New Indexes Of Coincident And Leading Economic Indicators," Papers 178d, Harvard - J.F. Kennedy School of Government.
  28. R. Glenn Hubbard, 1995. "Is there a "credit channel" for monetary policy?," Review, Federal Reserve Bank of St. Louis, issue May, pages 63-77.
  29. Ben S. Bernanke & Cara S. Lown, 1991. "The Credit Crunch," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(2), pages 205-248.
  30. Simon G. Gilchrist & Egon Zakrajsek, 1995. "The importance of credit for macroeconomic activity: identification through heterogeneity," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 39, pages 129-173.
  31. R. Glenn Hubbard, 1995. "Is there a "credit channel" for monetary policy?," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 63-77.
  32. Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 213-32.
  33. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  34. R. Glenn Hubbard, 1994. "Is There a `Credit Channel' for Monetary Policy?," NBER Working Papers 4977, National Bureau of Economic Research, Inc.
  35. Stephen D. Oliner & Glenn D. Rudebusch, 1995. "Is there a bank lending channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 1-20.
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