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Money, Credit, and Business Fluctuations

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  • Joseph E. Stiglitz

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

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2823.

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Date of creation: Jan 1989
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Publication status: published as The Economic Record, pp. 307-322, (December 1988).
Handle: RePEc:nbr:nberwo:2823

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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, 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. Sarah Carrington & Jakob B. Madsen, 2011. "House Prices, Credit and Willingness to Lend," The Economic Record, The Economic Society of Australia, vol. 87(279), pages 537-557, December.
  2. Phil Bodman, . "Are the Effects of Monetary Policy Asymmetric in Australia?," MRG Discussion Paper Series 0406, School of Economics, University of Queensland, Australia.
  3. 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 18-11, Monash University, Department of Economics.
  4. Steven Ongena, 1999. "Lending Relationships, Bank Default and Economic Activity," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 6(2), pages 257-280.
  5. 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, vol. 34(2), pages 429-440.
  6. Jeffrey M. Lacker, 1991. "Why is there debt?," Economic Review, Federal Reserve Bank of Richmond, issue Jul, pages 3-19.
  7. 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.
  8. Merton, Robert C., 1995. "Financial innovation and the management and regulation of financial institutions," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 461-481, June.
  9. Rohan Baxter, 1993. "The Loans Standard Model of Credit Money," Working Papers 93/183, Monash University, Department of Compter Studies.
  10. 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.
  11. Alejandro Diaz-Bautista & Julio R. Escandon, 2003. "A Simple Dynamic Model of Credit and Aggregate Demand," Macroeconomics 0308001, EconWPA.
  12. 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], vol. 32(4), pages 499-513.
  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. Georgios Argitis, 2008. "Finance, Investment and Macroeconomic Performance," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 71-88.
  15. repec:iab:iabmit:v:32:i:4:p:499-513 is not listed on IDEAS

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