The Interest Rate of “Transactional Loans” and Average Productivity of Capital in Iran’s Economy

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Ebrahimian, Mehran | 2014

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 46813 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Madanizadeh, Ali
Abstract:
In this research, I propose a macro-finance model with asymmetric information between firms and banks to investigate the capital misallocation effect of government interventions in financial markets of Iran’s economy, in terms of setting the price of “Transactional Loans”. In the presence of adverse selection, interest rate may be an instrument for screening lowproductive firms; however, the moral hazard problem of low productive firms with voluntary default, cancels out the filtering mechanism in high interest rates, if the cost of default for low-productive firms is low and judicial systems are poor in enforcing contracts. Hence, government repression/regulation policies do not affect the average productivity of capital, and capital misallocation is highly sensitive to the cost of strategic defaults imposed by legal institutions on defaulting borrowers
Keywords:
Asymmetric Information ; Transactional Loans Interset Rate ; Capital Average Productivity ; Strategic Default