Interest Rates and Selection Along the Business Cycle

54 Pages Posted: 14 Apr 2020 Last revised: 28 Oct 2020

See all articles by Anastasios Dosis

Anastasios Dosis

ESSEC Business School; CY Cergy Paris Université

Date Written: April 10, 2020


This paper studies the effect of interest rates on market selection. Consistent with the evidence, I demonstrate that busts exhibit adverse selection, whereas booms ac- companied by ultra-low rates exhibit advantageous selection. Interestingly, booms accompanied by intermediate interest rates simultaneously exhibit adverse and ad- vantageous selection. Changes in interest rates affect selection and, hence, the quan- tity and quality of loans. When interest rates are endogenous, multiple equilibria arise, although higher interest rate equilibria imply more and better loans. Adverse selection attenuates the stimulatory effects of monetary policy, and zero interest rates can lead banks to hoard cash. Several extensions and robustness checks are applied.

Keywords: Interest Rates, Banking, Lending, Selection, Monetary Policy

JEL Classification: D82, E30, E44, E58, G01, G21

Suggested Citation

Dosis, Anastasios, Interest Rates and Selection Along the Business Cycle (April 10, 2020). Available at SSRN: or

Anastasios Dosis (Contact Author)

ESSEC Business School

3 Avenue Bernard Hirsch
B.P 50105
Cergy - Pontoise Cedex, NA 95021

CY Cergy Paris Université ( email )


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics