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Credit Market Imperfections and Long-Run Macroeconomic Consequences

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  • Been-Lon Chen

    (Institute of Economics, Academia Sinica)

  • Yeong-Yuh Chiang

    (Department of Money and Banking, National Chengchi University)

  • Ping Wang

    (Department of Economics, Washington University in St. Louis and NBER)

Abstract

This paper develops a dynamic general-equilibrium model with production to examine the inter-relationships between the real and the financial sectors with and without credit market imperfections. Due to the moral hazard problem, borrowers may take the money and run while lenders may ration credit, resulting in a widened financial spread and low effective bank loans, compared to the unconstrained equilibrium. Credit rationing causes both the loan and the deposit rates to rise. In either unconstrained or constrained equilibrium, the long-run effects of a productivity improvement on real and financial activities depends crucially on where it is originated.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 9 (2008)
Issue (Month): 1 (May)
Pages: 151-175

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Handle: RePEc:cuf:journl:y:2008:v:9:i:1:p:151-175

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Keywords: Moral hazard; Credit constraints; Real and financial activities;

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References

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Citations

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Cited by:
  1. Rangan Gupta & Lardo Stander, 2014. "Endogenous Fluctuations in an Endogenous Growth Model with Inflation Targeting," Working Papers 201432, University of Pretoria, Department of Economics.
  2. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.
  3. Wang, Chan, 2012. "A very preliminary survey on growth and development," MPRA Paper 39037, University Library of Munich, Germany.

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