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We apply a three-tier hierarchical model of regulation, developed along the lines of Laffont and Tirole (1993), to an adverse selection problem in the corporate bond market. The bank brings the bonds to the market and informs the potential buyers about the bond risks; a unique benevolent public authority aims at maximising investors' welfare. The main goal is to investigate whether this unique authority is able to fully inform the market on a firm's true credit worthiness when banks, in order to recover doubtful credits, favour the placement of bonds issued by levered firms by concealing their true risk. By establishing the necessary conditions that allow optimal sanctions to produce the first best equilibrium, we show that the core problem of adverse selection in the corporate bond market does not lie so much in the benevolence of the delegated monitoring system, but rather in the possibility of affecting and sanctioning a firm's behavior.

Despite the increasing number of studies on monetary policy uncertainty, its role on the strategic interaction between fiscal and monetary policies has not been fully explored. Our paper aims to fill this gap by evaluating the consequences produced by multiplicative uncertainty in such a context. Strategic interaction between fiscal and monetary policies under monetary policy uncertainty. Symbiosis result no longer holds under unknown multiplicative shocks on monetary policy effects. Monetary uncertainty and fiscal uncertainty are not symmetric. Monetary uncertainty may induce both more and less aggressive effects on the final outcomes according to the kind of existing interaction between the government and the central bank. Multiplicative uncertainty implies an endogenous Phillips relationship between inflation and output, which does not emerge under fiscal uncertainty. [Copyright Elsevier B.V.]