Interest Rates and Investment Under Competitive Screening and Moral Hazard

Abstract : This paper studies the effect of (market) interest rate changes on investment under competitive screening and moral hazard. Lower (higher) rates ease (hinder) the provision of incentives to entrepreneurs with positive NPV projects to invest in their best project but hinder (ease) banks' efforts to distinguish them from entrepreneurs with negative NPV projects. This might result in a hump-shaped investment curve. Under low rates, screening through limit pricing leaves insufficient profits to low-wealth entrepreneurs to invest in their best project, and consequently, several project qualities might co-exist in equilibrium. Several testable and other implications on the effectiveness of unconventional monetary policy to boost investment are discussed.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [43 references]  Display  Hide  Download

https://hal-essec.archives-ouvertes.fr/hal-02130434
Contributor : Michel Demoura <>
Submitted on : Wednesday, May 15, 2019 - 6:17:14 PM
Last modification on : Friday, May 24, 2019 - 4:24:24 PM

File

WP_1902_DOSIS.pdf
Files produced by the author(s)

Identifiers

  • HAL Id : hal-02130434, version 1

Collections

Citation

Anastasios Dosis. Interest Rates and Investment Under Competitive Screening and Moral Hazard. 2019. ⟨hal-02130434⟩

Share

Metrics

Record views

17

Files downloads

86