Equilibrium Lending Mechanism and Aggregate Activity
نویسندگان
چکیده
This version: May, 2008 Abstract We construct a model of the credit market where lenders use two incentive devices, monitoring and termination, to enforce truth-telling and effort-making. The economy’s aggregate activity and its equilibrium lending mechanism are determined jointly and endogenously. We analyze how changes in the model’s exogenous variables, including the returns of the economy’s investment projects and the supply of loans, affect the economy’s aggregate output and the types of the credit through which investment is funded.
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