Money, Credit Constraints, and Economic Activity

21 Pages Posted: 19 Jun 2004

See all articles by Alan S. Blinder

Alan S. Blinder

Princeton University - Department of 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 1983

Abstract

When government expenditures exceed current tax revenues, the resulting deficit must be financed either by issuing bonds, which imply obligations to levy future taxes, or by creating high-powered money. The choice between money and bonds is often thought to be of great moment for both real and nominal variables; that is, monetary policy matters.There is by now a wide empirical consensus that monetary policy has effects on real variables like output and employment. But there is far less agreement about why this is so. The purpose of this paper is to take issue with some currently fashionable views of why money has real effects,and to suggest a new theory, or rather resurrect an old one--the loanable funds theory--and give it new, improved microfoundations.

Suggested Citation

Blinder, Alan S. and Stiglitz, Joseph E., Money, Credit Constraints, and Economic Activity (March 1983). NBER Working Paper No. w1084. Available at SSRN: https://ssrn.com/abstract=304812

Alan S. Blinder (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
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New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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