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Constructing Stategies in the Indefinitely Repeated Prisoner's Dilemma Game

Author

Listed:
  • Guillaume Rocheteau
  • Randall Wright
  • Cathy Zhang

Abstract

We develop a model where entrepreneurs can finance random investment opportunities using trade credit, bank-issued assets, or money. They search for funding in an over-the-counter market where the terms of the contract, including the interest rate, loan size, and down payment, are negotiated subject to pledgeability constraints. The theory has implications for the cross-sectional distribution of corporate loans and interest rates, pass through from nominal to real rates, and the transmission of monetary policy, described by either changes in the money growth rate or open market operations. We also consider the e ects of imposing di erent regulations on banks.

Suggested Citation

  • Guillaume Rocheteau & Randall Wright & Cathy Zhang, 2016. "Constructing Stategies in the Indefinitely Repeated Prisoner's Dilemma Game," Purdue University Economics Working Papers 1286, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1286
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    File URL: https://business.purdue.edu/research/working-papers-series/2016/1286.pdf
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    More about this item

    Keywords

    corporate finance; monetary policy; money; credit; interest rates;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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