Title
The Simple IS-LM Model With Credit Rationing
Document Type
Article
Publication Date
2004
Abstract
This paper examines how the effects of credit rationing can be incorporated into the simple IS-LM model. When credit rationing occurs, firms are not able to sell all the bonds they desire at the current rate of interest. Therefore transactions take place and are finalized at a price at which the implicit bond market underlying the model fails to clear. The non-market-clearing analysis derived from Clower's dual decision hypothesis is used to analyze the impact of such non-market-clearing transactions on the IS and LM curves.
Recommended Citation
Southwestern Economic Review, Vol. 31, 2004, 141-156.
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