créditos iguales

English translation: the demand for loanable funds and the supply of loanable funds are equal

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14:14 Apr 13, 2018
Spanish to English translations [PRO]
Bus/Financial - Finance (general) / collateral
Spanish term or phrase: créditos iguales
Stiglitz y Weiss (1981) elaboraron un modelo que parte de tres supuestos: condiciones de información asimétrica, créditos iguales y deudores indiferenciables; bajo estos supuestos, los autores concluyeron que incrementar los requerimientos de garantía a los deudores puede aumentar la propensión a tomar decisiones más riesgosas y a que se disminuya el retorno del prestamista
pistacho
Colombia
English translation:the demand for loanable funds and the supply of loanable funds are equal
Explanation:
This excerpt of the Stiglitz-Weiss (1981)'s Introduction shows better that 'credit iguales' = equilibrium in the credit market


Credit Rationing in Markets with Imperfect Information

By JOSEPH E. STIGLITZ AND ANDREW WEISS*


Why is credit rationed? Perhaps the most basic tenet of economics is that market equilibrium entails supply equalling demand; that if demand should exceed supply, prices will rise, decreasing demand and/or increasing supply until demand and supply are equated at the new equilibrium price. So if prices do their job, rationing should not exist. However, credit rationing and unemployment do in fact exist. They seem to imply an excess demand for loanable funds or an excess supply of workers.

One method of "explaining" these conditions associates them with short- or long-term disequilibrium. In the short term they are viewed as temporary disequilibrium phenomena; that is, the economy has incurred an exogenous shock, and for reasons not fully explained, there is some stickiness in the prices of labor or capital (wages and interest rates) so that there is a transitional period during which rationing of jobs or credit occurs. On the other hand, long-term unemployment (above some "natural rate") or credit rationing is explained by governmental constraints such as usury laws or mini­ mum wage legislation.1

The object of this paper is to show that in equilibrium a loan market may be characterized by credit rationing. Banks making loans are concerned about the interest rate they receive on the loan, and the riskiness of the loan. However, the interest rate a bank charges may itself affect the riskiness of the pool of loans by either: l) sorting potential borrowers (the adverse selection effect); or 2) affecting the actions of borrowers (the incentive effect). Both effects derive directly from the residual imperfect information which is present in loan markets after banks have evaluated loan applications. When the price (interest rate) affects the nature of the transaction, it may not also clear the market.

The adverse selection aspect of interest rates is a consequence of different borrowers having different probabilities of repaying their loan. The expected return to the bank obviously depends on the probability of repayment, so the bank would like to be able to identify borrowers who are more likely to repay. It is difficult to identify "good borrowers," and to do so requires the bank to use a variety of screening devices. The interest rate which an individual is willing to pay may act as one such screening device: those who are willing to pay high interest rates may, on average, be worse risks; they are willing to borrow at high interest rates because they perceive their probability of repaying the loan to be low. As the interest rate rises, the average "riskiness" of those who borrow increases, possibly lowering the bank's profits.

Similarly, as the interest rate and other terms of the contract change, the behavior of the borrower is likely to change. For instance, raising the interest rate decreases the return on projects which succeed. We will show that higher interest rates induce firms to undertake projects with lower probabilities of success but higher payoffs when successful.



Selected response from:

Francois Boye
United States
Local time: 21:47
Grading comment
thank you
4 KudoZ points were awarded for this answer



Summary of answers provided
4the demand for loanable funds and the supply of loanable funds are equal
Francois Boye
4all loans identical
philgoddard


  

Answers


2 hrs   confidence: Answerer confidence 4/5Answerer confidence 4/5
all loans identical


Explanation:
In other words, their terms and amounts are the same. All borrowers are also the same - in other words, they behave in the same way. The only variable is access to information: some borrowers know more than others.

philgoddard
United States
Specializes in field
Native speaker of: Native in EnglishEnglish
PRO pts in category: 286

Peer comments on this answer (and responses from the answerer)
neutral  Francois Boye: NOt quite! PLS read the excerpt I attached!// the excerpt defines all the hypotheses of the model!
20 mins
  -> I did, and I couldn't see what it had to do with "créditos iguales", which means "loans the same". .
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2 days 8 hrs   confidence: Answerer confidence 4/5Answerer confidence 4/5
the demand for loanable funds and the supply of loanable funds are equal


Explanation:
This excerpt of the Stiglitz-Weiss (1981)'s Introduction shows better that 'credit iguales' = equilibrium in the credit market


Credit Rationing in Markets with Imperfect Information

By JOSEPH E. STIGLITZ AND ANDREW WEISS*


Why is credit rationed? Perhaps the most basic tenet of economics is that market equilibrium entails supply equalling demand; that if demand should exceed supply, prices will rise, decreasing demand and/or increasing supply until demand and supply are equated at the new equilibrium price. So if prices do their job, rationing should not exist. However, credit rationing and unemployment do in fact exist. They seem to imply an excess demand for loanable funds or an excess supply of workers.

One method of "explaining" these conditions associates them with short- or long-term disequilibrium. In the short term they are viewed as temporary disequilibrium phenomena; that is, the economy has incurred an exogenous shock, and for reasons not fully explained, there is some stickiness in the prices of labor or capital (wages and interest rates) so that there is a transitional period during which rationing of jobs or credit occurs. On the other hand, long-term unemployment (above some "natural rate") or credit rationing is explained by governmental constraints such as usury laws or mini­ mum wage legislation.1

The object of this paper is to show that in equilibrium a loan market may be characterized by credit rationing. Banks making loans are concerned about the interest rate they receive on the loan, and the riskiness of the loan. However, the interest rate a bank charges may itself affect the riskiness of the pool of loans by either: l) sorting potential borrowers (the adverse selection effect); or 2) affecting the actions of borrowers (the incentive effect). Both effects derive directly from the residual imperfect information which is present in loan markets after banks have evaluated loan applications. When the price (interest rate) affects the nature of the transaction, it may not also clear the market.

The adverse selection aspect of interest rates is a consequence of different borrowers having different probabilities of repaying their loan. The expected return to the bank obviously depends on the probability of repayment, so the bank would like to be able to identify borrowers who are more likely to repay. It is difficult to identify "good borrowers," and to do so requires the bank to use a variety of screening devices. The interest rate which an individual is willing to pay may act as one such screening device: those who are willing to pay high interest rates may, on average, be worse risks; they are willing to borrow at high interest rates because they perceive their probability of repaying the loan to be low. As the interest rate rises, the average "riskiness" of those who borrow increases, possibly lowering the bank's profits.

Similarly, as the interest rate and other terms of the contract change, the behavior of the borrower is likely to change. For instance, raising the interest rate decreases the return on projects which succeed. We will show that higher interest rates induce firms to undertake projects with lower probabilities of success but higher payoffs when successful.





Francois Boye
United States
Local time: 21:47
Specializes in field
Native speaker of: Native in FrenchFrench
PRO pts in category: 268
Grading comment
thank you
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