Entrepreneurial Moral Hazard and Bank Monitoring: A Model of the Credit Channel

Posted: 8 Apr 1999

See all articles by Rafael Repullo

Rafael Repullo

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Javier Suarez

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Date Written: January 1999

Abstract

This paper develops a model of the choice between bank and market finance by entrepreneurial firms that differ in the value of their net worth. The monitoring associated with bank finance ameliorates a moral hazard problem between the entrepreneurs and their lenders. The model is used to analyze the different strands of the credit view of the transmission of monetary policy. In particular, we derive the empirical implications of a broad credit channel, and compare them to those obtained when the model is extended to incorporate some elements of the bank lending channel.

JEL Classification: D82, E44, E50

Suggested Citation

Repullo, Rafael and Suarez, Javier, Entrepreneurial Moral Hazard and Bank Monitoring: A Model of the Credit Channel (January 1999). CEPR Working Paper No. 2060. Available at SSRN: https://ssrn.com/abstract=154677

Rafael Repullo

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91429 0551 (Phone)
+34 91429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~repullo/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Javier Suarez (Contact Author)

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
Spain
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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