This paper develops and estimates a monetary DSGE model with adverse selection in credit markets. The model features a new shock, referred as a lemons shock, which changes the riskiness of debtors in the mean-preserving spread sense with each debtor's riskiness unknown to a creditor. The...

This paper develops two dynamic general equilibrium models in which private information about borrowers' riskiness causes adverse selection in credit markets. The models feature a new shock, referred as a lemons shock, which changes the riskiness of return for some but not all borrowers in the...

In the aftermath of the recent financial crisis and subsequent recession, slow recoveries have been observed and slowdowns in total factor productivity (TFP) growth have been measured in many economies. This paper develops a model that can describe a slow recovery resulting from an adverse...

Asymmetric information is crucial for understanding the disruption of the supply of credit. This paper studies a dynamic economy featuring asymmetric information and resulting adverse selection in credit markets. Entrepreneurs seek loans from banks for projects, but asymmetric information about...