We analyze in this paper the growth and welfare consequences arising from the lack of auditing commitment in a credit market with costly state verification. Specifically, two endogenous growth models, of which one allows lenders to commit to costly auditing strategies to identify borrowers'...

This paper provides a model to account for the empirical evidence that volatility reduces growth. In the model, greater volatility increases the cost associated with capital market imperfections and induces the financial intermediaries to charge higher interest rates. The model is based on one...