EQUILIBRIUM LENDING MECHANISM AND AGGREGATE ACTIVITY* |
| |
| Authors: | Cheng Wang Ruilin Zhou |
| |
| Institution: | 1. Iowa State University, USA and Fudan University, China;2. Penn State University, USA;3. We thank the editor, two referees, Ed Green, Jeff Lacker, and Rafael Repullo for helpful comments. Remaining errors are our responsibility. Please address correspondence to: Cheng Wang, Department of Economics, Iowa State University, Ames, IA 50011, USA. Phone: 515‐294‐1535. Fax: 515‐294‐1700. E‐mail: . |
| |
| Abstract: | We construct a model of the credit market where financial contracting is subject to costly state verification and moral hazard. The economy's aggregate activity and its equilibrium lending mechanism are determined jointly. 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. |
| |
| Keywords: | |
|
|
