Interest rates and information

Ferdinando Colombo*

*Autore corrispondente per questo lavoro

Risultato della ricerca: Contributo in rivistaArticolopeer review

Abstract

In a lending relationship, a bank learns information on its borrowers.\r\nAdverse selection makes the usefulness and value of this information\r\ndepend on the interest rates the bank charges in the different periods. The\r\noptimal intertemporal screening of borrowers calls for a monopolistic\r\nbank to smooth interest rates. In a repeated relationship, interest rates\r\nare lower than in a one-period setting; furthermore, they are less volatile\r\nand the quality of the loans is higher than under competition (with symmetric\r\ninformation). Information sharing may reduce both the probability\r\nthat a debt will be paid and the sum of banks’ and borrowers’ profits.
Lingua originaleInglese
pagine (da-a)641-657
Numero di pagine17
RivistaManchester School
Volume72
Numero di pubblicazione72(5)
DOI
Stato di pubblicazionePubblicato - 2004

All Science Journal Classification (ASJC) codes

  • Economia ed Econometria

Keywords

  • adverse selection
  • information sharing
  • learning by lending
  • market power
  • repeated relationship

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