Macro-Economic Equilibrium and Credit Rationing

57 Pages Posted: 9 Jun 2004 Last revised: 2 Dec 2022

See all articles by Andrew Weiss

Andrew Weiss

Boston University - Department of Economics; National Bureau of Economic Research (NBER)

andrew murray weiss

affiliation not provided to SSRN

Date Written: February 1987

Abstract

In this paper we investigate the macro-economic equilibria of an economy in which credit contracts have both adverse selection and incentive effects. The terms of credit contracts include both an interest rate and a collateral requirement. We show that in this richer model all types of borrowers may be rationed. Interest rates charged borrowers may move either pro or counter-cyclically. If pro-cyclical shocks have a greater effect on the success probabilities of risky techniques than on safe ones, then the interest rate offered depositors may also move counter-cyclically. Finally, we show that the impact of monetary policy on the macro-economic equilibrium is affected by whether or not the economy is in a regime in which credit is rationed.

Suggested Citation

Weiss, Andrew M. and weiss, andrew murray, Macro-Economic Equilibrium and Credit Rationing (February 1987). NBER Working Paper No. w2164, Available at SSRN: https://ssrn.com/abstract=227383

Andrew M. Weiss

Boston University - Department of Economics ( email )

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Andrew murray Weiss

affiliation not provided to SSRN