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Money, Imperfect Information and Economic Fluctuations

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  • Bruce Greenwald
  • Joseph E. Stiglitz

Abstract

This paper summarizes the macro-economic and, in particular, monetary and financial market implications of recent developments in the micro-economic theory of imperfect information. These micro-economic models which lead to credit-rationing on the one hand and limitations in the availability of equity type financing on the other can account for a wide range of observed business cycle and monetary phenomena. These include (a) unemployment, (b) the existence of Keynesian-type multiples, (c) the observed lack of production smoothing in response to cyclical fluctuations in demand, (d) the impact of monetary policy on business activity despite the absence of significant changes in real interest rates, and (e) price rigidities which arise from rational firm decisions (not as an a priori assumption).

Suggested Citation

  • Bruce Greenwald & Joseph E. Stiglitz, 1987. "Money, Imperfect Information and Economic Fluctuations," NBER Working Papers 2188, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2188
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    References listed on IDEAS

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    1. Greenwald, Bruce & Stiglitz, Joseph E & Weiss, Andrew, 1984. "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 74(2), pages 194-199, May.
    2. Barry Nalebuff & Andres Rodriguez & Joseph E. Stiglitz, 1993. "Equilibrium Unemployment as a Worker Screening Device," NBER Working Papers 4357, National Bureau of Economic Research, Inc.
    3. Joseph E. Stiglitz, 1988. "On the Relevance or Irrelevance of Public Financial Policy," International Economic Association Series, in: Kenneth J. Arrow & Michael J. Boskin (ed.), The Economics of Public Debt, chapter 2, pages 41-76, Palgrave Macmillan.
    4. Joseph E. Stiglitz, 1972. "Some Aspects of the Pure Theory of Corporate Finance: Bankruptcies and Take-Overs," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 458-482, Autumn.
    5. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
    6. 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.
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    Cited by:

    1. David M. Cutler & Lawrence H. Summers, 1988. "The Costs of Conflict Resolution and Financial Distress: Evidence from the Texaco-Pennzoil Litigation," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 157-172, Summer.
    2. Greenwald, B & Stiglitz, Joseph E, 1987. "Keynesian, New Keynesian and New Classical Economics," Oxford Economic Papers, Oxford University Press, vol. 39(1), pages 119-133, March.
    3. Roumeen Islam, 2006. "Does More Transparency Go Along With Better Governance?," Economics and Politics, Wiley Blackwell, vol. 18(2), pages 121-167, July.
    4. Scott McCarthy & Barry Oliver & Martie-Louise Verreynne, 2017. "Bank financing and credit rationing of Australian SMEs," Australian Journal of Management, Australian School of Business, vol. 42(1), pages 58-85, February.
    5. Islam, Roumeen, 2003. "do more transparent government govern better?," Policy Research Working Paper Series 3077, The World Bank.
    6. Tracy Mott, 1989. "Kaleckianism vs. "New" Keynesianism," Economics Working Paper Archive wp_25, Levy Economics Institute.
    7. Roberto Tamborini, 1997. "A macroeconomic model of bankruptcy," CEEL Working Papers 9702, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.

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