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Market Imperfection: Credit Rationing and Excess Liquidity

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  • Hye-Jin Cho

    (SU - Sorbonne Université)

Abstract

This article seeks to understand how the monetary policy facilitates credit channels such as credit growth, credit creation and investment spreads. A major task is tackling asymmetric information in credit markets. A decline in wealth transfer from the lender to the borrower which raises the adverse selection problem, thus leads to decreased lending and finance investment spending. The simulation with two representative countries provides us with detailed evidence on savings and investment expressing supply and demand of loanable funds at the economic level; but this is largely ignored in the conventional macroeconomic analysis: e.g. in the Arrow-Debreu model, firms can fund all projects on a pay-as-you-go basis. Further investigation will be conducted for the lender as the principal how to face a low interest rate environment. JEL classification: E22, E32, E52

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  • Hye-Jin Cho, 2019. "Market Imperfection: Credit Rationing and Excess Liquidity," Working Papers hal-02266107, HAL.
    • Handle: RePEc:hal:wpaper:hal-02266107
    Note: View the original document on HAL open archive server: https://hal.science/hal-02266107
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    More about this item

    Keywords

    credit rationing; fixed investment scale; excess liquidity; low interest rate;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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