Rationnement du crédit

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Alan S. Blinder

Working Paper No. 1619

NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 May 1985

The research reported here has been supported by the National Science Foundation, and was done in part while I was a visiting fellow at the Institute for International EconomicStudies, Stockholm, Sweden. I am grateful for comments received at seminar presentations at the Institute, Princeton, Harvard, Columbia, Brown, the Center of Planning and Research in Athens, and the National Bureau of Economic Research; and for discussions of these topics with Rudiger Dornbusch, Stanley Fischer, Benjamin Friedman,

Michael Horgan, Leonard Nakamura, John Seater, Dennis Snower,Robert Solow, Joseph Stiglitz and Lawrence Summers. Finally, it was a remark made at a seminar some years ago by Robert Mundell which first got me scratching my head about the concept of "effective supply." The research reported here is part of the NBER's research program in Economic Fluctuations. Any opinions expressed are those of the author and not those of the National Bureau of EconomicResearch.

NBER Working Paper #16 19 May 1985

Credit Rationing and Effective Supply Failures


This paper presents two macro models in which central bank policy has real effects on the supply. side of the economy due to credit rationing. In each model, there are two possible regimes, depending on whether credit is or is not rationed. Starting from an unrationed equilibrium, either alarge enough contraction of bank reserves or a large enough rise in aggregate demand can lead to rationing. Monetary (fiscal) policy is shown to be more (less) powerful when there is rationing than when there is not. In the first model, credit rationing reduces working capital. There is a failure of effective supply in that credit—starved firms must reduce production below national supply. Theresulting excess demand in the goods market may in turn drive prices up and reduce the real supply of credit further, leading to further reductions in supply and a stagflationary spiral. In the second model, credit rationing reduces investment, whichcuts into both .aggregate demand and Supply. Despite the effect on demand, stagflationary instability is still. possible•. A rise in government spendingcrowds out investment in the rationed regime but crowds in investment in the unraticrxed regime.
Alan S. Blinder Department of Economics Princeton University Princeton, NJ 08544 609—452—4010

Page 1


1. MOTIVATION AND BASIC IDEAS The topic of this paper is among the oldest and most

fundamental in monetary theory: how and why does monetarypolicy affect real economic activity? Traditional answers hold that the
central bank can raise (shrink) aggregate demand by engineering
an expansion (contraction) of the medium of exchange. In its monetarist variant, this story posits a direct link

between something called M and aggregate spending. In its
Keynesian variant, the story holds that adjustments in asset
prices brought about by achange in M lead to more spending, especially on capital goods.. In either case, short-run

stickiness of prices is needed to translate some of the changes
in demand into movements of real output. In recent years, these conventional stories have become

increasingly implausible, as Stiglitz and I (1983) have argued

elsewhere. With more and more assets apparently serving as rnedia
ofexchange, it has become increasingly difficult to define M,

much les to believe that the central bank can cause a recession
by contriving an artificial •shortage of whatever it calls M. Put

differently, the point seems both simple and compelling: if
there are ready substitutes for money, control of money will not
give the authorities much leverage over the real economy.

This paper develops...