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Quantity Rationing of Credit and the Phillips Curve

  • George A. Waters

    ()

    (Department of Economics, Illinois State University)

Quantity rationing of credit, when some ?firms are denied loans, has macroeconomics effects not fully captured by measures of borrowing costs. This paper develops a monetary DSGE model with quantity rationing and derives a Phillips Curve relation where in?flation dynamics depend on cyclical unemployment, a risk premium and the fraction of fi?rms receiving ?financing. Unemployment arising from disruptions in credit ?flows is defi?ned to be cyclical. GMM estimates using data from a survey of bank managers con?firms the importance of these variables for in?flation dynamics.

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File URL: http://economics.illinoisstate.edu/RePec/Papers/CreditRationingandthePC5-11_000.pdf
File Function: First version, 2011
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Paper provided by Illinois State University, Department of Economics in its series Working Paper Series with number 20111004.

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Length: 20 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:ils:wpaper:20111004
Contact details of provider: Web page: http://economics.illinoisstate.edu

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