June 21 2007

Xavier Freixas has received the prize to the Review of Financial Studies best paper of 2006 for his paper joint with Patrick Bolton "CorporateFinance and the Monetary Transmission Mechanism".

The paper explores first the structure of bank finance and market finance of an economy and then turns to analyse the impact of capital regulation on bank funding and the cost of credit. We show that multiple equilibria exist, so that the impact of monetary policy could be difficult to predict if it leads to a switch from one equilibrium to another.