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- Title
SIGNALING IN CREDIT MARKETS.
- Authors
Milde, Hellmuth; Riley, John G.; Q. E. D.
- Abstract
In this paper we show that, under a variety of alternative assumptions about the private information of loan applicants, a competitive market for loans is characterized by screening. Banks separate out loan risks by offering higher loans at higher interest rates. Depending on the nature of the informational asymmetry, it may be that applicants with less risky projects select larger rather than smaller loans. Comparative statics implications are also examined. In particular, we explore the effects of an increase in banks' cost of funds on average loan quality.
- Subjects
LOANS; MONETARY policy; CONSUMPTION (Economics); INTEREST rates; ECONOMIC indicators; CREDIT; ECONOMIC policy
- Publication
Quarterly Journal of Economics, 1988, Vol 103, Issue 1, p101
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1882644