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Credit Market Imperfections and Long-Run Macroeconomic Consequences

Author

Listed:
  • Been-Lon Chen

    (Institute of Economics, Academia Sinica)

  • Yeong-Yuh Chiang

    (Department of Money and Banking, National Chengchi University)

  • Ping Wang

    (Department of Economics, Washington University in St. Louis and NBER)

Abstract

This paper develops a dynamic general-equilibrium model with production to examine the inter-relationships between the real and the financial sectors with and without credit market imperfections. Due to the moral hazard problem, borrowers may take the money and run while lenders may ration credit, resulting in a widened financial spread and low effective bank loans, compared to the unconstrained equilibrium. Credit rationing causes both the loan and the deposit rates to rise. In either unconstrained or constrained equilibrium, the long-run effects of a productivity improvement on real and financial activities depends crucially on where it is originated.

Suggested Citation

  • Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2008. "Credit Market Imperfections and Long-Run Macroeconomic Consequences," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 151-175, May.
    • Handle: RePEc:cuf:journl:y:2008:v:9:i:1:p:151-175
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    References listed on IDEAS

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    3. Rangan Gupta & Cobus Vermeulen, 2010. "Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting," Annals of Economics and Finance, Society for AEF, vol. 11(1), pages 139-153, May.
    4. Gupta, Rangan & Stander, Lardo, 2018. "Endogenous fluctuations in an endogenous growth model: An analysis of inflation targeting as a policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 69(C), pages 1-8.
    5. Wang, Chan, 2012. "A very preliminary survey on growth and development," MPRA Paper 39037, University Library of Munich, Germany.
    6. Beccarini, Andrea, 2014. "Solving the liquidity constraint by options on futures," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 116-120.
    7. Bittencourt, Manoel & Gupta, Rangan & Makena, Philton & Stander, Lardo, 2022. "Socio-political instability and growth dynamics," Economic Systems, Elsevier, vol. 46(4).

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    More about this item

    Keywords

    Moral hazard; Credit constraints; Real and financial activities;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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