Publisher Article
Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications
Abstract: Our goal is to elucidate the interaction of banks' screening effort and strategic information production in loan-backed asset markets using a general equilibrium framework. Asset quality is unobserved by investors, but banks may purchase error-prone ratings. The premium paid on highly rated assets emerges as the main determinant of banks' screening effort. The fact that rating strategies reflect banks' private information about asset quality helps keep this premium high. Conventional regulatory policies interfere with this decision margin, thereby reducing signaling value of high ratings and exacerbating the credit misallocation problem. We propose a tax/subsidy scheme that induces efficiency.
JEL Classification: G01; G24; G28;
https://doi.org/10.20955/wp.2018.018
Status: Forthcoming in Journal of Monetary Economics
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https://doi.org/10.1016/j.jmoneco.2019.12.002
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https://doi.org/10.20955/wp.2018.018
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Bibliographic Information
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2021-03
Volume: 118
Issue: March 2021
Pages: 87-98
Note: Publisher DOI: https://doi.org/10.1016/j.jmoneco.2019.12.002
Related Works
- Publisher Article (2021-03) : You are here.
- Publisher Postprint (2019-12-05) : Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications
- Working Paper Original (2018-09-01) : Imperfect Information Transmission from Banks to Investors: Macroeconomic Implications