Quantity Rationing of Credit (Waters G.)

Bank Products and Diversification Bank-Borrower Relationships Interest Rates

Abstract Quantity rationing of credit, when firms are denied loans, has greater potential to explain macroeconomic fluctuations than borrowing costs. This paper develops a DSGE model with both types of financial frictions. A deterioration in credit market confidence leads to a temporary change in the interest rate, but a persistent change in the fraction of firms receiving financing, which leads to a persistent fall in real activity. Empirical evidence confirms that credit market confidence, measured by the survey of loan officers, is a significant leading indicator for capacity utilization and output, while borrowing costs, measured by interest rate spreads, is not.​
External link


Libref/ Waters G. (2012) "Quantity Rationing of Credit", Bank of Finland Research Discussion Paper No. 3/2012
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