This paper presents a simple, general equilibrium macroeconomic model incorporating financial constraints, both credit and equity rationing, as well as other informational imperfections in labor and product markets, such as efficiency wage effects. A formulation somewhat analogous to the standard IS-LM model, but not suffering from the well known defects of that model, is derived. The mechanisms by which monetary policy affects the economy are described. Dynamics, including implications for long run growth, are investigated.
*Published: This paper was subsequently published as Macroeconomic Models with Equity and Credit Rationing, Bruce C. Greenwald, Joseph E. Stiglitz, in NBER book Asymmetric Information, Corporate Finance, and Investment (1990)
Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1989. "Macroeconomic models with equity and credit rationing," Proceedings, Federal Reserve Bank of San Francisco.
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