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Macro-Economic Equilibrium and Credit Rationing

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  • Joseph E. Stiglitz
  • Andrew Weiss

Abstract

In this paper we investigate the macro-economic equilibria of an economy in which credit contracts have both adverse selection and incentive effects. The terms of credit contracts include both an interest rate and a collateral requirement. We show that in this richer model all types of borrowers may be rationed. Interest rates charged borrowers may move either pro or counter-cyclically. If pro-cyclical shocks have a greater effect on the success probabilities of risky techniques than on safe ones, then the interest rate offered depositors may also move counter-cyclically. Finally, we show that the impact of monetary policy on the macro-economic equilibrium is affected by whether or not the economy is in a regime in which credit is rationed.

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File URL: http://www.nber.org/papers/w2164.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2164.

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Date of creation: Jan 1987
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Publication status: published as Stiglitz, Joseph E. and Andrew Weiss. "Keynesian, New Keynesian and New Classical Econmics," Oxford Economic Papers, Vol. 39, 1987, pp. 119-132.
Handle: RePEc:nbr:nberwo:2164

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  1. Stiglitz, Joseph E, 1985. "Credit Markets and the Control of Capital," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(2), pages 133-52, May.
  2. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1984. "Informational Imperfections in the Capital Market and Macro-Economic Fluctuations," NBER Working Papers 1335, National Bureau of Economic Research, Inc.
  3. Besanko, David & Thakor, Anjan V., 1987. "Competitive equilibrium in the credit market under asymmetric information," Journal of Economic Theory, Elsevier, Elsevier, vol. 42(1), pages 167-182, June.
  4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 71(3), pages 393-410, June.
  5. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  6. Alan S. Blinder & Joseph E. Stiglitz, 1983. "Money, Credit Constraints, and Economic Activity," NBER Working Papers 1084, National Bureau of Economic Research, Inc.
  7. Guasch, J Luis & Weiss, Andrew, 1982. "An Equilibrium Analysis of Wage-Productivity Gaps," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 49(4), pages 485-97, October.
  8. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 912-27, December.
  9. Bhattacharya, Sudipto, 1980. "Nondissipative Signaling Structures and Dividend Policy," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 95(1), pages 1-24, August.
  10. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  11. Joseph Stiglitz & Andrew Weiss, 1990. "Sorting Out the Differences Between Signaling and Screening Models," NBER Technical Working Papers 0093, National Bureau of Economic Research, Inc.
  12. Wette, Hildegard C, 1983. "Collateral in Credit Rationing in Markets with Imperfect Information: Note," American Economic Review, American Economic Association, American Economic Association, vol. 73(3), pages 442-45, June.
  13. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, Elsevier, vol. 8(3), pages 337-360, July.
  14. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, American Economic Association, vol. 75(4), pages 850-55, September.
  15. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
  16. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  17. Stiglitz, Joseph E, 1984. "Price Rigidities and Market Structure," American Economic Review, American Economic Association, American Economic Association, vol. 74(2), pages 350-55, May.
  18. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(3), pages 526-38, June.
  19. Guasch, J Luis & Weiss, Andrew, 1980. "Wages as Sorting Mechanisms in Competitive Markets with Asymmetric Information: A Theory of Testing," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(4), pages 653-64, July.
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Citations

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Cited by:
  1. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
  2. Joseph Stiglitz & Jungyoll Yun, 2013. "Optimality and Equilibrium In a Competitive Insurance Market Under Adverse Selection and Moral Hazard," NBER Working Papers 19317, National Bureau of Economic Research, Inc.
  3. Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, Elsevier, vol. 44(2), pages 281-304, February.

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