Saving-Investment Correlations and Government Policy under Credit Constraints
In this paper, we develop two topics of the current literature on credit markets under asymmetric information. First, we present an explanation based on credit constraints for the high observed correlation between national investment and national savings. In this respect, we can explain some of the findings of Felstein and Horioka (1980), but in a context of perfectly integrated capital markets. Second, we discuss the role of government intervention to promote investment under credit constraints. We see how asymmetric information in credit markets may modify the results of a policy with respect to the usual effects in a world without information problems and under what conditions some policies may succeed in increasing investment.
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|Date of creation:||01 Feb 1994|
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