The Allocation of Credit and Financial Collapse
AbstractThis paper examines the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders. It illustrates (1) the allocation of credit is inefficientand at times can be improved by government intervention, and (2) small changes in the exogenous risk-free interest rate can cause large (discontinuous) changes in the allocation of credit and the efficiency of the market equilibrium.These conclusions suggest a role for government as the lender of last resort.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1786.
Date of creation: Jan 1986
Date of revision:
Publication status: published as Mankiw, N. Gregory."The Allocation of Credit and Financial Collapse," Quarterly Journal of Economics, Vol. 101, No. 3, (August 1986), pp. 455-470.
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