Book contents
- Frontmatter
- Contents
- List of tables
- Preface
- Acknowledgments
- 1 Introduction and background
- 2 Firms rationed in the credit market
- 3 Households rationed in the credit market
- 4 Households and firms rationed in the credit market
- 5 Central-bank portfolio selection and stabilization policies
- 6 Summary
- Appendix: Monetary and fiscal policies with a flexible interest rate
- Selected bibliography
2 - Firms rationed in the credit market
Published online by Cambridge University Press: 06 January 2010
- Frontmatter
- Contents
- List of tables
- Preface
- Acknowledgments
- 1 Introduction and background
- 2 Firms rationed in the credit market
- 3 Households rationed in the credit market
- 4 Households and firms rationed in the credit market
- 5 Central-bank portfolio selection and stabilization policies
- 6 Summary
- Appendix: Monetary and fiscal policies with a flexible interest rate
- Selected bibliography
Summary
This chapter examines domestic-policy effectiveness in a small, open economy with price rigidities. What distinguishes this analysis from previous, related open-economy models is the possibility of rationing in the credit market due to interest-rate rigidity. Thus, it is a natural extension of existing neo-Keynesian open-economy models, which up to now have concentrated only on the policy implications of rationing in product and labor markets. The importance of this extension needs little elaboration. Credit rationing is a widely observed phenomenon in all types of economies and has important general equilibrium effects. For example, a firm that cannot raise the level of credit it wants may reduce its planned production and therefore its demand for labor. Also, it may reduce its planned inventory accumulation, increasing its current supply of goods. On the other hand, a household that is rationed in the credit market may revise its demand for goods. Thus, the effect of macroeconomic policy on the supply of goods and the demand for labor and goods is conditioned, in part, by its effect on the availability of credit.
The basic model developed in this chapter can be employed for analyzing all types of regimes with rationing in the credit market (i.e., regimes characterized by excess demand or excess supply of credit). The temporary equilibrium under consideration is characterized by firms rationed in the credit market and households rationed in the labor market.
- Type
- Chapter
- Information
- Macroeconomic Policy AnalysisOpen Economies with Quantity Constraints, pp. 8 - 20Publisher: Cambridge University PressPrint publication year: 1989