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On Government Credit Programs

Author

Listed:
  • Marco Espinosa-Vega

    (Federal Reserve Bank of Atlanta)

  • Bruce D. Smith

    (University of Texas, Austin)

  • Chong K. Yip

    (Chinese University of Hong Kong)

Abstract

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.

Suggested Citation

  • Marco Espinosa-Vega & Bruce D. Smith & Chong K. Yip, 1999. "On Government Credit Programs," Computing in Economics and Finance 1999 351, Society for Computational Economics.
    • Handle: RePEc:sce:scecf9:351
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