Effective supply failures and structural adjustment: a real--financial model with reference to India

C. W. M. Naastepad

Cambridge Journal of Economics, 2002, vol. 26, issue 5, 637-657

Abstract: Using a multiperiod real--financial CGE model, this paper identifies the impact of budgetary policy on credit supply as a possible factor limiting the effectiveness of structural adjustment programmes. Focusing on credit rather than money, and explicitly analysing the relation between the budget and the credit creation process, the model goes beyond earlier modelling approaches by (1) incorporating credit rationing, (2) recognising the dual role of credit for working capital and investment, and (3) allowing for endogenous switches between credit-constrained, capacity-constrained and demand-constrained regimes. With this approach, the relation between money, output and prices, and issues of crowding in versus crowding out, are solved endogenously rather than assumed a priori. Copyright 2002, Oxford University Press.

Date: 2002
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