NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Money, Imperfect Information and Economic Fluctuations

Bruce Greenwald, Joseph E. Stiglitz

NBER Working Paper No. 2188
Issued in March 1987
NBER Program(s):   EFG

This paper summarizes the macro-economic and, in particular, monetary and financial market implications of recent developments in the micro-economic theory of imperfect information. These micro-economic models which lead to credit-rationing on the one hand and limitations in the availability of equity type financing on the other can account for a wide range of observed business cycle and monetary phenomena. These include (a) unemployment, (b) the existence of Keynesian-type multiples, (c) the observed lack of production smoothing in response to cyclical fluctuations in demand, (d) the impact of monetary policy on business activity despite the absence of significant changes in real interest rates, and (e) price rigidities which arise from rational firm decisions (not as an a priori assumption).

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Document Object Identifier (DOI): 10.3386/w2188

Published: Kohn, Meir and Sho-Chieh Tsiang (eds.) Finance constraints, expectations, and macroeconomics. Oxford; New York; Toronto and Melbourne: Oxford University Press, Clarendon Press, 1988.

 
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