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Money, Credit, and Business Fluctuations

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  • Stiglitz, Joseph E

Abstract

This paper provides a critique of standard theories of money, in particular those based on money as a medium of exchange. Money is important because of the relationship between money and credit. The process of judging credit worthiness, in which banks play a central role, involves the collection and processing of information. Like many other economic activities involving information, these processes are not well described by means of standard production functions. Changes in economic circumstances can have marked effects on the relevance of previously accumulated information and accordingly on the supply of credit. Changes in the availability of credit may have marked effects on the level of economic activity, while changes in real interest rates seem to play a relatively minor role in economic fluctuations. This alternative view has a number of implications for policy, both at the macro-economic level (for instance, on the role of monetary policy for stabilization purposes and the choice of targets) and at the micro-economic level.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal The Economic Record.

Volume (Year): 64 (1988)
Issue (Month): 187 (December)
Pages: 307-22

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Handle: RePEc:bla:ecorec:v:64:y:1988:i:187:p:307-22

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References

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  1. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 77-114, February.
  2. Greenwald, B & Stiglitz, Joseph E, 1987. "Keynesian, New Keynesian and New Classical Economics," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 119-33, March.
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Cited by:
  1. Alejandro Diaz-Bautista & Julio R. Escandon, 2003. "A Simple Dynamic Model of Credit and Aggregate Demand," Macroeconomics, EconWPA 0308001, EconWPA.
  2. Sarah J. Carrington & Jakob B. Madsen, 2011. "House Prices, Credit And Willingness To Lend," Economics Series 2011_3, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  3. Ebrahim, M. Shahid & Shackleton, Mark B. & Wojakowski, Rafal M., 2011. "Participating mortgages and the efficiency of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 3042-3054, November.
  4. repec:iab:iabmit:v:32:i:4:p:499-513 is not listed on IDEAS
  5. Kromphardt, Jürgen, 1999. "Ansatzpunkte der Beschäftigungspolitik aus keynesianischer Sicht," Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 32(4), pages 499-513.
  6. Phil Bodman, . "Are the Effects of Monetary Policy Asymmetric in Australia?," MRG Discussion Paper Series 0406, School of Economics, University of Queensland, Australia.
  7. Shiller, Robert J. & Wojakowski, Rafał M. & Ebrahim, M. Shahid & Shackleton, Mark B., 2013. "Mitigating financial fragility with Continuous Workout Mortgages," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 269-285.
  8. Georgios Argitis, 2008. "Finance, Investment and Macroeconomic Performance," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 71-88.
  9. Rohan Baxter, 1993. "The Loans Standard Model of Credit Money," Working Papers 93/183, Monash University, Department of Compter Studies.
  10. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, Taylor & Francis Journals, vol. 6(2), pages 257-280.
  11. Jakob B Madsen & Sarah J Carrington, 2011. "Cycles and Corporate Investment: Direct Tests Using Survey Data on Banks’ Lending Practices," Development Research Unit Working Paper Series, Monash University, Department of Economics 18-11, Monash University, Department of Economics.
  12. Robert C. Merton, 1995. "Financial Innovation and the Management and Regulation of Financial Institutions," NBER Working Papers 5096, National Bureau of Economic Research, Inc.
  13. Smant, David / D.J.C., 2002. "Bank credit in the transmission of monetary policy: A critical review of the issues and evidence," MPRA Paper 19816, University Library of Munich, Germany.
  14. Jeffrey M. Lacker, 1991. "Why is there debt?," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 3-19.
  15. Madsen, Jakob B. & Carrington, Sarah J., 2012. "Credit cycles and corporate investment: Direct tests using survey data on banks’ lending practices," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(2), pages 429-440.

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