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Credit Market Imperfections, Financial Activity and Economic Growth

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Author Info

  • Been-Lon Chen

    (Academia Sinica)

  • Yeong-Yuh Chiang

    (National Chengchi University)

  • Ping Wang

    ()
    (Department of Economics, Vanderbilt University)

Abstract

This paper develops a dynamic general-equilibrium model with production to examine the inter-relationships between the real and the financial sectors with and without credit market imperfections. Due to the moral hazard problem, credit rationing may be present, which is associated with a widened financial spread and low effective bank loans, compared to the unconstrained equilibrium. Credit rationing causes both the loan and the deposit rates to rise. In a generalized framework with intergenerational human capital accumulation, credit rationing discourages education investment and reduces output growth. In either unconstrained or constrained equilibrium, the long-run effects of a productivity improvement on real financial activities depends crucially on where it is originated.

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File URL: http://www.accessecon.com/pubs/VUECON/vu00-w20.pdf
File Function: First version, 2000
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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0020.

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Date of creation: Jun 2000
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Handle: RePEc:van:wpaper:0020

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

Related research

Keywords: Credit constraints; financial activity; endogenous growth;

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References

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Citations

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Cited by:
  1. Rangan Gupta, 2005. "Endogenous Tax Evasion and Reserve Requirements: A Comparative Study in the Context of European Economies," Computing in Economics and Finance 2005, Society for Computational Economics 328, Society for Computational Economics.
  2. Rangan Gupta, 2005. "Costly State Monitoring and Reserve Requirements," Annals of Economics and Finance, Society for AEF, vol. 6(2), pages 263-288, November.
  3. Rangan Gupta, 2005. "Tax Evasion and Financial Repression," Working papers 2005-34, University of Connecticut, Department of Economics, revised Jun 2007.
  4. Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Vanderbilt University Department of Economics Working Papers 0228, Vanderbilt University Department of Economics, revised Oct 2003.

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