If in general, financial deepening aids economic growth, then financial repression should be harmful. We use a natural experiment – the change in the English usury laws in 1714 – to analyse the effects of interest rate restrictions. Based on a sample of individual loan transactions, we...

This paper develops a model of equilibrium in the market for loans. It focuses on the effects on equilibrium of (i) differences in the liability of the lender and the borrower for losses; and (ii) differences in the information available to the lender. We examine the different types of...

Informational frictions between borrowers and lenders differ across classes of borrowers. Innovative firms undertake high-risk-high-return projects which are likely to be little understood by financial intermediaries. As a consequence, they may end up allocating too large a share of funds to...

We examine empirically the role of lending relationships in determining the collateral requirements, costs and availability of external funding. The data originates from a recently concluded survey of small- and medium-sized German firms. In our descriptive analysis, we explore the borrowing...

We study the impact of different bankruptcy laws in general equilibrium, taking into account the interactions between the credit and labour markets, as well as wealth heterogeneity. Soft bankruptcy laws often preclude liquidation, to avoid ex-post inefficiencies. This worsens credit rationing,...

Crowding-out during the British Industrial Revolution has long been one of the leading explanations for slow growth during the Industrial Revolution, but little empirical evidence exists to support it. We argue that examinations of interest rates are fundamentally misguided, and that the...

We study the welfare implications of market power in a model where banks choose between credit rationing and monitoring in order to alleviate an underlying moral-hazard problem. We show that the effect of banks’ market power on social welfare is the result of two countervailing effects. On the...

We shed light on the function, properties and optimal size of austerity using the standard sovereign model augmented to include incomplete information about credit risk. Austerity is defined as the shortfall of consumption from the level desired by a country and supported by its repayment...

We analyze the impact of financial crises and monetary policy on the supply of wholesale funding liquidity, and also on the compositional supply effects through cross-border and relationship lending. For empirical identification, we draw on the proprietary bank-to-bank European interbank dataset...

This paper investigates the impact of sovereign defaults on the ability of the corporate sector in emerging nations to finance itself abroad. The hypothesis here is that defaults have a negative spillover effect on the private sector through credit rationing. We explore a novel dataset covering...