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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)

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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.vanderbilt.edu/Econ/wparchive/workpaper/vu00-w20.pdf
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File Function: First version, 2000
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Paper provided by Department of Economics, Vanderbilt University in its series 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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Related research
Keywords: Credit constraints financial activity endogenous growth

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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 328, Society for Computational Economics. [Downloadable!]
  2. Rangan Gupta, 2005. "Tax Evasion and Financial Repression," Working papers 2005-34, University of Connecticut, Department of Economics, revised Jun 2007. [Downloadable!]
  3. Rangan Gupta & Emmanuel Ziramba, 2008. "Misalignment in the Growth-Maximizing Policies under Alternative Assumptions of Tax Evasion," Working Papers 200819, University of Pretoria, Department of Economics. [Downloadable!]
  4. Neville N. Jiang & Ping Wang & Haibin Wu, 2002. "Finance Thy Growth: The Role of Occupational Choice By Ability-Heterogeneous Agents," Working Papers 0228, Department of Economics, Vanderbilt University, revised Oct 2003. [Downloadable!]
  5. Rangan Gupta & Emmanuel Ziramba, 2008. "Openness, Bureaucratic Corruption and Public Policy in an Endogenous Growth Model," Working Papers 200817, University of Pretoria, Department of Economics. [Downloadable!]
  6. Rangan Gupta & Emmanuel Ziramba, 2008. "Tax Evasion and Financial Repression: A Reconsideration Using Endogenous Growth Models," Working Papers 200808, University of Pretoria, Department of Economics.
  7. Rangan Gupta, 2004. "Costly State Monitoring and Reserve Requirements," Working papers 2004-33, University of Connecticut, Department of Economics, revised Jul 2005. [Downloadable!]
  8. Thabo Mokoena & Rangan Gupta & Renee van Eyden, 2008. "Half-Life Deviations from PPP in the SADC," Working Papers 200823, University of Pretoria, Department of Economics.
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