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A Simple Macroeconomic Model with Endogenous Credit Rationing

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  • John Fender

Abstract

In this paper, a two-period macroeconomic model, in which output is demand determined, is constructed. In the first period firms may borrow to finance investment, which reduces their marginal costs in the second period; however, since default by borrowers is possible there is an incentive compatibility constraint which may or may not bind. If it binds, there is endogenous credit rationing. Three regimes are possible; in Regime I there is no investment; in Regime II there is positive investment without the ICC holding, whereas in the third the condition binds and there is credit rationing. The behaviour of the economy in each of these regimes, and the circumstances under which each of these regimes obtains, are analyzed and some conclusions drawn. The possibility that the model possesses multiple equilibria is considered.

Suggested Citation

  • John Fender, 1995. "A Simple Macroeconomic Model with Endogenous Credit Rationing," Annals of Economics and Statistics, GENES, issue 37-38, pages 215-235.
    • Handle: RePEc:adr:anecst:y:1995:i:37-38:p:215-235
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    File URL: http://www.jstor.org/stable/20075987
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    Cited by:

    1. John Fender & Ping Wang, 2003. "Educational Policy in a Credit Constrained Economy with Skill Heterogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 939-964, August.
    2. John Fender & Ping Wang, 2000. "Educational Policy and Skill Heterogeneity with Credit Market Imperfections," Vanderbilt University Department of Economics Working Papers 0021, Vanderbilt University Department of Economics.

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