Credit Market Imperfections and Long-Run Macroeconomic Consequences

Been-Lon Chen, Yeong-Yuh Chiang and Ping Wang
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Yeong-Yuh Chiang: Department of Money and Banking, National Chengchi University

Annals of Economics and Finance, 2008, vol. 9, issue 1, 151-175

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.

Keywords: Moral hazard; Credit constraints; Real and financial activities (search for similar items in EconPapers)
JEL-codes: D90 E13 E44 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2008:v:9:i:1:p:151-175

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