It is commonly argued that banks play a special role in the financial system because they resolve an important information asymmetry. The recent development of an active secondary market for loans could however potentially diminish this special role. This study utilizes a unique dataset of secondary market loan prices to examine this issue. We find that new loan announcements are associated wit...

The debt overhang problem is shown to arise in the context of an entrepreneurial project that requires a sequence of investments financed by an outside lender. The entrepreneur, not internalizing losses accruing to the lender which financed the initial investments, may inefficiently cancel the project and instead pursue an outside opportunity. It is shown that loan commitments (contracts that a...

This paper studies the effects of interest rate restrictions on loan allocation. In 1714, the British government tightened the usury laws, reducing the maximum permissible interest rate from 6 to 5 percent. A sample of individual loan transactions from a goldsmith bank allows us to examine how interest rate restrictions affected loan allocation. Average loan size and minimum loan size increased...

WORK IN PROGRESS We investigate the implications of several key features of mortgage markets for optimal policy for open economy inflation targeters. We show that the existence of fixed mortgage contracts shifts the transmission of monetary policy away from the standard interest rate transmission channel towards direct and indirect exchange rate channels. In addition, contracts that allow for h...