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An Adverse-Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy

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  • Jeremy C. Stein

Abstract

I develop a model in which information problems make it difficult for banks to raise funds with instruments other than insured deposits. The model has a number of implications for bank asset and liability management as well as corporate financing patterns. It also speaks to the question of how monetary policy works: when the Federal Reserve reduces reserves, this tightens banks' financing constraints and leads to both a cutback in the supply of intermediated lending and an increase in bond-market interest rates.

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  • Jeremy C. Stein, 1998. "An Adverse-Selection Model of Bank Asset and Liability Management with Implications for the Transmission of Monetary Policy," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 466-486, Autumn.
  • Handle: RePEc:rje:randje:v:29:y:1998:i:autumn:p:466-486
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