IDEAS home Printed from https://ideas.repec.org/p/kee/keeldp/2000-10.html
   My bibliography  Save this paper

On Monetary Policy Implications of Credit Rationing under Asymmetric Information

Author

Listed:
  • Frédérique Bracoud

    () (Department of Economics University of Keele)

Abstract

This paper analyses the monetary policy transmission mechanisms through the banking sector. Banks are assumed to compete a la Bertrand in a loan market characterized by adverse selection. Stiglitz and Weiss' (1981) set-up is extended to introduce leakages of reserves from the banking system, compulsory reserves, and loans from the central bank. The paper shows that the banks' re- serves management strategy is totally subordinated to the dictates of competition in the loan market. This generates some unusual results. For instance, if the central bank increases the legal reserve requirement, the banks' reserve ratio may decrease. In addition, the paper confirms that when credit is rationed, monetary policy is transmitted through quantities. Nevertheless, in spite of a rigid credit rate, some price adjustment transmission mechanism does actually occur under credit rationing since the deposit rate reacts.

Suggested Citation

  • Frédérique Bracoud, 2000. "On Monetary Policy Implications of Credit Rationing under Asymmetric Information," Keele Department of Economics Discussion Papers (1995-2001) 2000/10, Department of Economics, Keele University, revised Feb 2001.
  • Handle: RePEc:kee:keeldp:2000/10
    as

    Download full text from publisher

    File URL: http://www.keele.ac.uk/depts/ec/wpapers/0010.pdf
    Download Restriction: no

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kee:keeldp:2000/10. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin E. Diedrich). General contact details of provider: http://edirc.repec.org/data/dekeeuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.