Anastasios Dosis, ESSEC Business School. "Interest Rates and Selection Along the Business Cycle"
ESOP seminar. Anastasios Dosis is an Assistant Professor at ESSEC Business School. He will present the paper: "Interest Rates and Selection Along the Business Cycle".
This paper studies the effect of interest rates on market selection. Consistent with evidence, I demonstrate that busts exhibit adverse selection, whereas booms accompanied by ultra low rates exhibit advantageous selection. Interestingly, booms accompanied by intermediate interest rates simultaneously exhibit adverse and advantageous selection. Changes in interest rates affect selection and hence the quantity and quality of loans. When interest rates are endogenous, multiple equilibria arise, although higher interest-rate equilibria imply more and better loans. Adverse selection attenuates the stimulative effects of monetary policy and zero interest rates can lead banks to hoard cash. Several extensions and robustness checks are studied.