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On government credit programs

  • Marco Espinosa-Vega
  • Bruce D. Smith
  • Chong K. Yip

Credit rationing is a common feature of most developing economies. In response to it, the governments of these countries often operate extensive credit programs and lend, either directly or indirectly, to the private sector. We analyze the macroeconomic consequences of a typical government credit program in a small open economy. We show that such programs increase long-run production if the economy is in a development trap and that such programs often lead to endogenously arising aggregate volatility. On the other hand, they may eliminate certain indeterminacies created by endogenous credit market frictions.

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Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 98-2.

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Date of creation: 1998
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Handle: RePEc:fip:fedawp:98-2
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  1. William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics.
  2. Elisabeth Huybens & Bruce D. Smith, 1996. "Financial Market Frictions, Monetary Policy and Capital Accumulation in a Small Open Economy," Working Papers 9608, Centro de Investigacion Economica, ITAM.
  3. Brock, Philip L, 1989. "Reserve Requirements and the Inflation Tax," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(1), pages 106-21, February.
  4. Espinosa-Vega, Marco A, 1995. "Multiple Reserve Requirements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 762-76, August.
  5. Boyd, John H. & Smith, Bruce D., 1997. "Capital Market Imperfections, International Credit Markets, and Nonconvergence," Journal of Economic Theory, Elsevier, vol. 73(2), pages 335-364, April.
  6. Carter, Michael R., 1988. "Equilibrium credit rationing of small farm agriculture," Journal of Development Economics, Elsevier, vol. 28(1), pages 83-103, February.
  7. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  8. Bruce D. Smith & Michael J. Stutzer, 1989. "Credit Rationing and Government Loan Programs: A Welfare Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 177-193.
  9. Boyd, John H & Smith, Bruce D, 1994. "How Good Are Standard Debt Contracts? Stochastic versus Nonstochastic Monitoring in a Costly State Verification Environment," The Journal of Business, University of Chicago Press, vol. 67(4), pages 539-61, October.
  10. Weil, Philippe, 1992. "The budgetary arithmetics of loan guarantees and deposit insurance," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 37(1), pages 97-122, December.
  11. Innes, Robert, 1991. "Investment and government intervention in credit markets when there is asymmetric information," Journal of Public Economics, Elsevier, vol. 46(3), pages 347-381, December.
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