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- Type of Document: M.Sc. Thesis
- Language: Farsi
- Document No: 51031 (44)
- University: Sharif University of Technology
- Department: Management and Economics
- Advisor(s): Madanizadeh, Ali
- Abstract:
- To understand the link between the capital misallocation and financial repression in less-developed economies, we put forward a dynamic theoretical macro-finance model with information asymmetry between firms and the bank. While there is no exogenous instrument for the bank to asses firms’ productivity, we let him update his belief about firms’ productivity, based on their records. We show in the presence of asymmetric information and weak formal contract enforcement systems, in the short-run, increasing the interest rate may increase capital misallocation since the moral hazard problem of strategically defaulting of firms can cancel out the screening mechanism of increasing the interest rate. However, in the long-run, the fact that the defaulter cannot take more loan in next periods, increasing interest rate works perfectly well as an instrument for screening low-productive firms
- Keywords:
- Strategic Default ; Asymmetric Information ; Bank Interest Rate ; Capital Missalocation
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