On equilibrium credit rationing and interest rates

Article Abstract:

The effects of credit rationing on interest rate movements were examined. Previous studies on this subject have emphasized that credit rationing was implemented through limitations on the amount of loans approved. It was posited, however, that credit rationing implemented through the limitations on the size of loans instead on the number of loans may result in the decline of interest rates. It was suggested that credit rationing is one factor in the inverse relationship between interest rates and investments and that rationing distorts the operations of credit markets.

Commercial loans, Credit market, Credit markets

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The behavior of velocity and nominal interest rates in a cash-in-advance model

Article Abstract:

The assumption of a homogeneous utility function involving cash and credit goods could be the factor behind the failure to reproduce a nonstationary income velocity. A specific parametric form of a cash-in-advance model is used to examine the behavior of income velocity and nominal interest rates. It is found that the equilibrium income velocity becomes nonstationary once such homogeneity restriction is eased and a long-run nonlinear relationship between velocity, nominal interest rates and real output is then noted.

Money demand, Circular velocity of money

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Credit rationing, implicit contracts, risk aversion, and the variability of interest rates

Article Abstract:

Credit information is discussed in relation to banks and the relationship of the latter with customers under an uncertain environment. It is observed that banks and customers, who do not want risk, exhibit a tendency to agree among themselves through implicit contracts that guarantee credit rationing at the cost of interest rate variability. The interest rate is dependent on the nature of bank insurance, the degree of risk aversion, and the cost of loan processing.

Research, Credit, Risk (Insurance)

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