Equilibrium lending mechanism and aggregate activity

Cheng Wang, Ruilin Zhou

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Pages (from-to)631-651
Number of pages21
JournalInternational Economic Review
Volume51
Issue number3
DOIs
StatePublished - Aug 2010

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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