Template-Type:ReDIF-Paper 1.0  
Title: Agency Costs, Net Worth, and the Transmission Mechanism of Monetary Policy 
Author-Name:  Fachat, Christian 
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Classification-JEL:E13, E32, E44, E51  
Keywords: financial intermediation, costly state verification, monetary transmission mechanism, credit channel, limited participation
Abstract: A variety of empirical and theoretical evidence published in recent years suggests that frictions in
	credit markets are crucial to understand the monetary transmission mechanism. The objective of this paper is
	to provide a quantitative evaluation of the credit view interpretation of this evidence. Special attention is
	paid to the role of borrowers' net worth. A model with endogenous agency costs is developed where a debt
	contracting problem with asymmetric information between lender and borrower is embedded in a stochastic
	dynamic general equilibrium model with money. The model incorporates a cash-in-advance constraint and a
	limited participation assumption in order to induce a liquidity effect of monetary shocks and to propagate
	monetary disturbances. The paper has two principal conclusions: First, the model economy shows that a
	positive money supply shock generates an increase in output and in employment. Second, ex ante
	heterogeneity of borrowers has a significant influence on the reactions of the model economy to a monetary
	shock. 
Length: 36
Creation-Date: 2000-03
Revision-Date: 
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse2_2000.pdf
File-Format: application/pdf
Handle: RePEc:bon:bonedp:bgse2_2000