Seminario "Falling Interest Rates and Credit Misallocation: Lessons from General Equilibrium"

Miércoles 22/9, 17h

Presentado por Victoria Vanasco
Paper Abstract
What is the effect of declining interest rates on the efficiency of resource allocation andoverall economic activity? We study this question in a setting in which entrepreneurs withdifferent productivities invest in capital, subject to financial frictions. We show that a fallin the interest rate has an ambiguous effect on aggregate output. In partial equilibrium, alower interest rate raises aggregate investment both by relaxing financial constraints andby prompting relatively less productive entrepreneurs to invest. In general equilibrium,this higher demand for capital raises its price and crowds out investment by the moreproductive entrepreneurs. When this crowding-out effect is strong enough, a fall in theinterest rate becomes contractionary. Moreover, in a dynamic setup, such reallocationeffects among entrepreneurs can interact with the classic balance-sheet channel, giving rise to aboom-bustimpulse response of output to a fall in the interest rate. We provideevidence in support of our mechanism using data from the US and Spain.

Victoria Vanasco
Ph.D. in Economics, University of California Berkeley. Researcher at the Centre de Recerca en Economia International (CREi). 
Her research focuses on topics related to information asymmetries and their impact on financial markets and the real economy. Before joining CREi, she was an Assistant Professor of Finance at the Stanford Graduate School of Business. Victoria is also a Research Affiliate at CEPR, an Affiliated Professor at the Barcelona GSE, an Associate Editor at Management Science, and a member of the Editorial Board at The Review of Economic Studies.

Lugar: Zoom Meeting
Contacto: Cecilia Lafuente