Download Credit, Investments and the Macroeconomy: A Few Open Issues by Marco Mazzoli PDF

By Marco Mazzoli

This booklet relates the literatures of finance, business economics and funding to the theoretical framework of the "credit view." First, banks' judgements relating their resources are noticeable as at the very least as suitable as their judgements referring to their liabilities. moment, securities and financial institution credits are hugely imperfect substitutes. The interactions among genuine and monetary sectors are analyzed from the perspective of the economic company, in a version the place the funding and monetary judgements of the enterprise are taken concurrently.

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Extra info for Credit, Investments and the Macroeconomy: A Few Open Issues

Example text

Unlike the models of the credit view, this assumption does not yield models where bank credit and securities are explicitly formalized as imperfect substitutes, but it only determines a functional link (or even a 'fixed spread', as in Horngren, 1985), between the interest rate on banks' loans and the interest rate on deposits. Obviously, the credit view puts a different emphasis onfinancialmarkets imperfections and rejects the Modigliani-Miller theorem, by assuming non-neutrality of firms' financial structure, but some similarities with the modelling techniques employed in the 'new view' can be found in the use of aggregate balance-sheet relations and in the formalization of supply functions for some relevantfinancialassets which allows for imperfect substitutability among different assets.

They hold a relevant portion of ownership, allowing them to take any financial decision. They can issue a quality signal given by their share ownership in the future return on investments. With asymmetric information, 'goodquality' firms incur a cost owing to the fact that outside investors cannot distinguish the quality of the securities without a signal. Firms therefore issue a signal that has to be costly in order to prevent low-quality firms from issuing misleading signals. Since the signal is the insiders' share ownership of the returns on investments, the cost of the signal is a limitation on the insiders' portfolio diversification.

E. not only monetary policy shocks) that affect Z/(), Ld() or /*(•). e. when the LM curve is horizontal. Bernanke and Blinder focus their attention on the 'issues that elude the IS-LM model'. e. a shift in /*,(•)) causes the locus CC to shift outwards along a fixed LM curve, p to fall, / and y to increase. The opposite would happen after an upward shift in the credit demand function Ld In such a context, both a policy trying to stabilize money and another one trying to stabilize credit would be (at least qualitatively) effective if they had to counterbalance an expansionary IS shock.

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