Money and Credit in a Production Economy

Peghe (Chrissopighi) Braila and Francesco Magris

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In this paper we combine liquidity constrained lenders and borrowers in a market for investment projects that is characterized by incomplete information. The assumption of different probability distributions of the investment projects creates an adverse selection problem which gives rise to credit rationing in the loan market. Monetary policy has real effects, interacts with both the degree of liquidity and the degree of credit rationing, and alters the aggregate level of capital stock and its marginal productivity.

Keywords: credit rationing; cash-in-advance constraints; investment (search for similar items in EconPapers)
JEL-codes: D45 D92 E44 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-pke
Date: 2000-07-01
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Persistent link: http://EconPapers.repec.org/RePEc:sef:csefwp:46

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