Financial Markets and Inflation Under Imperfect Information

By Jose De Gregorio, Federico Sturzenegger

June 1, 1994

Preview Citation

Format: Chicago

Jose De Gregorio, and Federico Sturzenegger. Financial Markets and Inflation Under Imperfect Information, (USA: International Monetary Fund, 1994) accessed November 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper studies the effect of inflation on the operation of financial markets, and shows how the ability of financial intermediaries to distinguish among heterogenous firms is reduced as inflation rises. This point is illustrated by presenting a simple model where inflation affects firms’ productivity. In particular, productivity differentials narrow as inflation increases. This effect creates incentives for risky and less productive firms to behave as high productivity firms. At high rates of inflation this may result in financial intermediaries being unable to differentiate among customers.

Subject: Credit, Inflation, Money, Prices, Production, Productivity, Tax incentives

Keywords: Credit, Firms look, Global, H-firms employment, High-productivity firm, Inflation, Low-productivity firm, Pooling equilibrium h-firm, Productivity, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1994/063
Stock No:

WPIEA0631994
ISBN:

9781451848359
ISSN:

1018-5941

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