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Money and Credit in a Production Economy

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  • Pighi Braila

    ()
    (CSEF, Università di Salerno, and CORE, UCL Belgium)

  • Francesco Magris

    (Università di Trieste and University of Cambridge, UK))

Abstract

In this paper we combine liquidity constrained lenders and borrowers in a market for investment projects that is characterized by incomplete information. The assumption of different probability distributions of the investment projects creates an adverse selection problem which gives rise to credit rationing in the loan market. Monetary policy has real effects, interacts with both the degree of liquidity and the degree of credit rationing, and alters the aggregate level of capital stock and its marginal productivity.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 46.

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Date of creation: 01 Jul 2000
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Handle: RePEc:sef:csefwp:46

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Keywords: credit rationing; cash-in-advance constraints; investment;

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  1. Azariadis Costas & Smith Bruce D., 1993. "Adverse Selection in the Overlapping Generations Model: The Case of Pure Exchange," Journal of Economic Theory, Elsevier, vol. 60(2), pages 277-305, August.
  2. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  3. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  4. Bencivenga, V.R. & Smith, B.D., 1988. "Some Consequences Of Credit Rationing In An Endogenous Growth Model," RCER Working Papers 159, University of Rochester - Center for Economic Research (RCER).
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