Financial Fragility and Economic Performance
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors argue that financial instability occurs when entrepreneurs who want to undertake investment projects have low net worth; the heavy reliance on external finance that this implies causes the agency costs of investment to be high.
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Abstract: Financial stability is an important goal of policy, but the relation of financial stability to economic performance and even the meaning of the term itself are poorly understood. This paper explores these issues in a theoretical model. We argue that financial instability, or fragility, occurs when entrepreneurs who want to undertake investment projects have low net worth; the heavy reliance on external finance that this implies causes the agency costs of investment to be high. High agency costs in turn lead to low and inefficient investment. Standard policies for fighting financial fragility can be interpreted as transfers that maintain or increase the net worth of potential borrowers.
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Citations
Low Inflation: The Behavior of Financial Markets and Institutions
TL;DR: In this article, a broad overview of the potential impact of low inflation (deflation) on U.S. financial markets and institutions is provided, including a decline in secondary market trading and a trend towards reintermediation.
23
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Explaining Bank Failures in Brazil: Micro, Macro and Contagion Effects (1994-1998)
TL;DR: In this paper, the authors apply duration (survival) models with exponential hazard and exponential piecewise-constant hazard functions to study the determinants of bank failure over the period 1994 to 1998 in Brazil.
External imbalances and recoveries
Mariam Camarero,María Dolores Gadea-Rivas,Ana Gómez-Loscos,Cecilio Tamarit +3 more
- 01 Jan 2020
TL;DR: Gadea et al. as mentioned in this paper analyzes the effect of external imbalances on the performance of the current account (CA) and concludes that future macro-prudential policies should pay more attention to stock variables, due to their effects on the characteristics of recovery.
22
Banking Crises and the Lender of Last Resort: How Crucial is the Role of Information?
TL;DR: This paper developed a model that studies how the presence of a lender of last resort (LOLR) affects the ex ante investment incentives of banks and showed that a perfectly informed LOLR induces a first-best outcome for small and medium sized banks but causes moral hazard in larger banks given the high contagion cost of their failure.
22
Bank Credit to Small and Medium-Sized Enterprises: The Role of Creditor Protection
Arturo Galindo,Alejandro Micco +1 more
TL;DR: The authors explored the role of creditor protection on small and medium-size enterprises access to bank credit and found that better protection of creditors reduces the financing gap between small and large firms, which implies that inefficiencies in the bankruptcy procedure will have a greater effect on small firms vis-vis large ones.
References
The Market for “Lemons”: Quality Uncertainty and the Market Mechanism
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Credit Rationing in Markets with Imperfect Information.
Joseph E. Stiglitz,Andrew Weiss +1 more
TL;DR: In this paper, a model is developed to provide the first theoretical justification for true credit rationing in a loan market, where the amount of the loan and amount of collateral demanded affect the behavior and distribution of borrowers, and interest rates serve as screening devices for evaluating risk.
Financial Intermediation and Delegated Monitoring
TL;DR: In this paper, the authors developed a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders, and presented a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary.
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A course in probability theory
Kai Lai Chung
- 01 Jan 2001
TL;DR: This edition of A Course in Probability Theory includes an introduction to measure theory that expands the market, as this treatment is more consistent with current courses.
3.1K
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The Debt-Deflation Theory of Great Depressions
Irving Fisher
- 10 Jun 2010
TL;DR: The cycle theory of great depressions has been studied extensively in the literature as discussed by the authors, and its conclusions have been widely accepted and, so far as I know, no one has yet found them anticipated by previous writers, though several have zealously sought to find such anticipations.