ICEF/LFE Research Seminar by Guillaume Plantin (Sciences Po)
On Thursday, September 12 ICEF and LFE held the Research Seminar.
Theme: "Monetary Easing, Leveraged Payouts and Lack of Investment" joint with Viral V. Acharya
Abstract: This paper studies a model in which a low monetary policy rate lowers the cost of capital for entrepreneurs, thereby spurring productive investment. Low interest rates also induce them to lever up so as to increase payouts to equity. Whereas such leveraged payouts privately benefit entrepreneurs, they come at the social cost of reducing their incentives and productivity. In the presence of an unregulated shadow-banking system, the monetary authority has no choice but stimulating investment below first-best levels in order to contain such socially costly leveraged payouts.