Screening Cycles

Thomas Gehrig and ,

No 2915, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We demonstrate how endogenous information acquisition in credit markets creates lending cycles when competing banks undertake their screening decisions in an uncoordinated way, thereby highlighting the role of intertemporal screening externalities induced by lending market competition as a structural source of instability. We show that uncoordinated screening behaviour of competing banks may be not only the source of an important financial multiplier, but also an independent source of fluctuations inducing business cycles. The screening cycle mechanism is robust to generalizations along many dimensions such as the lending market structure, the lending rate determination and the imperfections in the screening technology.

Keywords: Screening; Lending cycles; Banking competition; Financial stability (search for similar items in EconPapers)
JEL-codes: D83 E32 E44 (search for similar items in EconPapers)
Date: 2001-08
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Citations: View citations in EconPapers (7)

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