Credit Market Imperfections, Financial Activity and Economic Growth

Been-Lon Chen, Yeong-Yuh Chiang and Ping Wang
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Yeong-Yuh Chiang: National Chengchi University

No 20, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

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, credit rationing may be present, which is associated with 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 a generalized framework with intergenerational human capital accumulation, credit rationing discourages education investment and reduces output growth. In either unconstrained or constrained equilibrium, the long-run effects of a productivity improvement on real financial activities depends crucially on where it is originated.

Keywords: Credit constraints; financial activity; endogenous growth (search for similar items in EconPapers)
JEL-codes: D90 E44 (search for similar items in EconPapers)
Date: 2000-06
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0020

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