On Government Credit Programs

Marco Espinosa-Vega (), Bruce D. Smith () and Chong Yip
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Bruce D. Smith: University of Texas, Austin

No 351, Computing in Economics and Finance 1999 from Society for Computational Economics

Abstract: Credit Rationing is a common feature of most developing economies. In response to it, the governments of these countries often operate extensive credit programs and lend, either directly or indirectly, to the private sector. We analyze the macroeconomic consequences of a typical government credit program in a small open economy. We show that such programs increase long-run production if the economy is in a development trap and that such programs often lead to endogenously-arising aggregate volatility. On the other hand, they may eliminate certain indeterminacies created by endogenous credit market frictions.

Date: 1999-03-01
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Working Paper: On government credit programs (1998)
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