I study the effect of interest rates on banks' lending standards. I find that low (high) interest rates discourage (encourage) screening but facilitate (hinder) effort provision. Less screening, as a result of low interest rates, increases the likelihood of a banking crisis. I further show that...

This paper studies how the real interest rate affects the (mis)allocation of capital in a small open economy characterised by asymmetric information in the financial market. Low interest rates accompanied by low entrepreneurial wealth allow unprofitable firms to enter the pool of borrowers. This...

This paper studies the effect of interest rates on market selection. Consistent with the evidence, I demonstrate that busts exhibit adverse selection, whereas booms ac- companied by ultra-low rates exhibit advantageous selection. Interestingly, booms accompanied by intermediate interest rates...

I study the effect of interest rates on banks' lending standards and find that low (high) interest rates discourage (encourage) screening but facilitate (hinder) effort provision. Less screening as a result of low interest rates increases the likelihood of a banking crisis. I further show that...