Money, Imperfect Information and Economic Fluctuations

39 Pages Posted: 19 Jun 2004 Last revised: 26 Jun 2010

See all articles by Bruce C. N. Greenwald

Bruce C. N. Greenwald

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: March 1987

Abstract

This paper summarizes the macro-economic and, in particular, monetary and financial market implications of recent developments in the micro-economic theory of imperfect information. These micro-economic models which lead to credit-rationing on the one hand and limitations in the availability of equity type financing on the other can account for a wide range of observed business cycle and monetary phenomena. These include (a) unemployment, (b) the existence of Keynesian-type multiples, (c) the observed lack of production smoothing in response to cyclical fluctuations in demand, (d) the impact of monetary policy on business activity despite the absence of significant changes in real interest rates, and (e) price rigidities which arise from rational firm decisions (not as an a priori assumption).

Suggested Citation

Greenwald, Bruce and Stiglitz, Joseph E., Money, Imperfect Information and Economic Fluctuations (March 1987). NBER Working Paper No. w2188. Available at SSRN: https://ssrn.com/abstract=300739

Bruce Greenwald (Contact Author)

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Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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