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Quantity Rationing of Credit

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  • George A. Waters

    ()
    (Department of Economics, Illinois State University)

Abstract

Quantity rationing of credit, when ?firms are denied loans, has greater potential to explain macroeconomics ?fluctuations than borrowing costs. This paper develops a DSGE model with both types of financial frictions. A deterioration in credit market con?fidence leads to a temporary change in the interest rate, but a persistent change in the fraction of ?firms receiving ?financing, which leads to a persistent fall in real activity. Empirical evidence confi?rms that credit market con?fidence, measured by the survey of loan officers, is a signi?cant leading indicator for capacity utilization and output, while borrowing costs, measured by interest rate spreads, is not.

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File URL: http://economics.illinoisstate.edu/RePec/Papers/QuantityRationingofCreditJMCB.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Illinois State University, Department of Economics in its series Working Paper Series with number 20111005.

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Length: 23 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:ils:wpaper:20111005

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Web page: http://economics.illinoisstate.edu

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Keywords: Quantity Rationing; Credit; VAR;

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  1. Charles T. Carlstrom & Timothy S. Fuerst, 1996. "Agency costs, net worth, and business fluctuations: a computable general equilibrium analysis," Working Paper 9602, Federal Reserve Bank of Cleveland.
  2. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, vol. 119(1), pages 78 - 121.
  3. Lown, Cara & Morgan, Donald P., 2004. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," SIFR Research Report Series 27, Institute for Financial Research.
  4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
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  8. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  9. Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2005. "Exploring interactions between real activity and the financial stance," Journal of Financial Stability, Elsevier, vol. 1(3), pages 308-341, April.
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  12. Anil K. Kashyap & Jeremy C. Stein, 1994. "Monetary Policy and Bank Lending," NBER Chapters, in: Monetary Policy, pages 221-261 National Bureau of Economic Research, Inc.
  13. Monacelli, Tommaso, 2009. "New Keynesian models, durable goods, and collateral constraints," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 242-254, March.
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Cited by:
  1. George A. Waters, 2013. "Quantity versus Price Rationing of Credit: An Empirical Test," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 1(3), pages 45-53, July.

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