Collateral, Credit Rationing and the Real Effect of Monetary Policy

Raju Singh

Swiss Journal of Economics and Statistics (SJES), 1996, vol. 132, issue IV, 563-574

Abstract: This paper tries to improve the identification of firms whose access to bank credit would be threatened by a tightening of monetary policy. It extends a simple competitive credit rationing model with limited collateral by introducing a central bank financing facility. The effects of monetary policy are then examined. Besides the standard interest rate effect, the study shows that a tighter monetary policy would reduce bank lending to entrepreneurs endowed with low-risk projects and limited net wealth. In addition, the economy would become more volatile.

Date: 1996
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Persistent link: https://EconPapers.repec.org/RePEc:ses:arsjes:1996-iv-3

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