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Banks as Social Accountants and Screening Devices for the Allocation of Credit

  • Joseph E. Stiglitz
  • Andrew Weiss

This paper presents and alternative perspective on the role of banks. We emphasize the ways in which banks act as social accountants and screening devices. In this view monetary disturbances have their effects through the disturbances which they induce in society's accounting system and in the mechanisms by which it is ascertained who is credit worthy. Because of asymmetric information, giving rise to credit rationing, interest rates do not play the simple allocative role ascribed by the conventional paradigm, and as a result the equilibrating forces provided by market mechanisms may be weak or virtually absent. The paper provides a critique of the transactions based approach to monetary theory, and sketches a general equilibrium formulation of the theory. The paper traces out some of the policy implications of the theory. We show that certain financial innovations, such as allowing for the more rapid recording of transactions, may actually be welfare reducing.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2710.

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Date of creation: Sep 1988
Date of revision:
Publication status: published as Essays in Monetary Econmics in Honor of Sir John Hicks, 1989 ed. A. Couralies and C. Goodhart, MacMillan Publishers
Handle: RePEc:nbr:nberwo:2710
Note: ME
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  1. Blinder, Alan S & Stiglitz, Joseph E, 1983. "Money, Credit Constraints, and Economic Activity," American Economic Review, American Economic Association, vol. 73(2), pages 297-302, May.
  2. Fama, Eugene F., 1980. "Banking in the theory of finance," Journal of Monetary Economics, Elsevier, vol. 6(1), pages 39-57, January.
  3. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  4. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 1-48, March.
  5. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  6. Ordover, Janusz & Weiss, Andrew, 1981. "Information and the Law: Evaluating Legal Restrictions on Competitive Contracts," American Economic Review, American Economic Association, vol. 71(2), pages 399-404, May.
  7. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
  8. Stiglitz, Joseph E, 1974. "Incentives and Risk Sharing in Sharecropping," Review of Economic Studies, Wiley Blackwell, vol. 41(2), pages 219-55, April.
  9. Friedman, Milton, 1971. "A Monetary Theory of Nominal Income," Journal of Political Economy, University of Chicago Press, vol. 79(2), pages 323-37, March-Apr.
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