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Do information asymmetries constitute a solid foundation for the elaboration of a Keynesian theory of credit and financial institutions?

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  • Bertocco Giancarlo

    ()
    (Department of Economics, University of Insubria, Italy)

Abstract

In the last 20 years, the New Keynesians (henceforth, NKs) have developed a theoretical approach which aims to elaborate an alternative monetary theory to the on traditionally associated with Keynes. The distinctive feature of this new approach is its emphasis on the credit market and the role played by financial intermediaries rather than the money market; the importance given to the credit market is justified by the presence of asymmetrical information. The objective of this paper is twofold: i) to show that the presence of asymmetric information constitutes a weak premise on which to build a Keynesian theory of credit and financial intermediaries; ii) to outline the elements on which a theory of credit consistent with Keynes's thinking can be built. The paper is divided into three sections. In the first one, the most important aspects of the NK's theory are described; the limitations of this theoretical approach are then demonstrated in the second section; in the third section, the elements which should characterise a Keynesian theory of credit and financial institutions are outlined.

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File URL: http://eco.uninsubria.it/dipeco/Quaderni/files/QF2001_19.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Insubria in its series Economics and Quantitative Methods with number qf0111.

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Length: 25 pages
Date of creation: Nov 2001
Date of revision:
Handle: RePEc:ins:quaeco:qf0111

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  1. Paul Davidson, 1991. "Is Probability Theory Relevant for Uncertainty? A Post Keynesian Perspective," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 129-143, Winter.
  2. Alan S. Blinder & Joseph E. Stiglitz, 1983. "Money, Credit Constraints, and Economic Activity," NBER Working Papers 1084, National Bureau of Economic Research, Inc.
  3. Bruce C. Greenwald & Joseph E. Stiglitz, 1990. "Macroeconomic Models with Equity and Credit Rationing," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 15-42 National Bureau of Economic Research, Inc.
  4. Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, vol. 44(2), pages 281-304, February.
  5. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
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