Screening Cycles

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Title: Screening Cycles
Author: Gehrig, Thomas; Stenbacka, Rune
Contributor: Swedish School of Economics and Business Administration, Department of Economics, Economics
Belongs to series: Working Papers - 461
ISSN: 0357-4598
ISBN: 951-555-698-8
Abstract: We demonstrate how endogenous information acquisition in credit markets creates lending cycles when competing banks undertake their screening decisions in an uncoordinated way, thereby highlighting the role of intertemporal screening externalities induced by lending market competition as a structural source of instability. We show that uncoordinated screening behavior of competing banks may be not only the source of an important financial multiplier, but also an independent source of fluctuations inducing business cycles. The screening cycle mechanism is robust to generalizations along many dimensions such as the lending market structure, the lending rate determination and the imperfections in the screening technology.
Date: 2001
Subject: banking competition
financial stability
lending cycles
Rights: This publication is copyrighted. You may download, display and print it for Your own personal use. Commercial use is prohibited.

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