Quantity rationing of credit

George Waters

No 3/2012, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: Quantity rationing of credit, when firms are denied loans, has greater potential to explain macroeconomics fluctuations than borrowing costs. This paper develops a DSGE model with both types of financial frictions. A deterioration in credit market confidence leads to a temporary change in the interest rate, but a persistent change in the fraction of firms receiving financing, which leads to a persistent fall in real activity. Empirical evidence confirms that credit market confidence, measured by the survey of loan officers, is a significant leading indicator for capacity utilization and output, while borrowing costs, measured by interest rate spreads, is not.

Keywords: quantity rationing; credit; VAR (search for similar items in EconPapers)
JEL-codes: E10 E24 E44 E50 (search for similar items in EconPapers)
Date: 2012
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Related works:
Working Paper: Quantity Rationing of Credit (2011)
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