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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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Cited by:
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  1. 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!]
  2. 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!]
  3. 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.
  4. Rangan Gupta, 2004. "Costly State Monitoring and Reserve Requirements," Working papers 2004-33, University of Connecticut, Department of Economics, revised Jul 2005. [Downloadable!]
  5. Rangan Gupta, 2005. "Tax Evasion and Financial Repression," Working papers 2005-34, University of Connecticut, Department of Economics, revised Jun 2007. [Downloadable!]
    Other versions:
  6. 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!]
  7. 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!]
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