Volume 43, Number 171,
October-December 2012
Credit Rationing:
A Perspective from New Keynesian Economics
Abigail Rodríguez and Francisco Venegas

Although there is less research that tries to link credit rationing with the macroeconomic context in New Keynesian Economics, there are a few important works: credit offer is associated with monetary policy in Blinder and Stiglitz (1983), McCallum (1991) and Atanasova and Wilson (2003). Other cases associate granting of credit with the structure of the financial system, like in Holmström and Tirole (1997). The most notorious area of this field is the convergence of these works in the hypotheses that expansive monetary policy and the prosperity of financial markets (in fully competitive environments and in the presence of financial intermediation) contribute to favoring credit access.

Blinder and Stiglitz (1983) explain that the effects of monetary policy are modified by credit rationing. For example, if the central bank issues more public bonds, the effect is the contraction of credit, investment and real activity, but the interest rate will have few changes (upwards). Blinder (1987) writes that companies have a notional or planned offer of products, whose realization depends on financing provided by the bank. If the bank rations credit, the product offering will contract, as well as the demand for goods and employment.

Following Blinder’s (1987) proposal, McCallum (1991) tries to demonstrate the connection between monetary policy and credit rationing for the economy in the United States between 1942 and 1986. He assumes three alternative criteria to observe credit rationing: the restrictive nature of monetary policy, the credit market conditions and the excess of credit demand. The study demonstrates that credit rationing helps explain nearly 50% of product contraction attributed to monetary restriction. More recently, Atanasova and Wilson (2003) show that contractive monetary policy accents credit restriction, a situation further strengthened by asymmetry of information and reduced collateral that the applicants are able to offer. The empirical analysis is applied for British companies between 1989 and 1999.

Holmström and Tirole (1997) build a model in which the presence of financial intermediaries facilitates credit access for companies with reduced net value. Financial intermediation fulfills the function of monitoring the companies, investing in them to improve project yields and improving credit conditions.

Dewatripont and Maskin (1995) contrast the results regarding access to credit and the financing of productive investments when markets are centralized and decentralized. In the latter case, selecting projects is more efficient because if the creditors have scarce information on the projects that seek financing, selection must be more precise. In contrast, in centralized markets, the creditors act as if they were the only ones and can thus monitor the companies, renew credits and participate in final earnings.

Finally, other works such as Rockerbie (1993) extend credit rationing to the macroeconomic level, assuming that governments in developing countries are those that may be subject to credit restrictions in international financial markets. This proposal says that demand for credit is represented by the excess of anticipated national investment over national savings. The empirical observation between 1965 and 1988 in various Latin American countries does not show evidence of rationing.

The current crisis highlights a few empirical facts related to credit decisions, including expansive monetary policy in the United States, an increase in financial intermediation activities, the securitization of assets and an increase in the level of public and private debt. Even though works from Blinder and Stiglitz (1983) and Blinder (1987) locate the origin of credit rationing in restrictive monetary policy, recent facts, such as greater debt and increased financial intermediation, rather demonstrate the validity of some pioneering hypotheses that indicated that the banking credit supply is determined by monetary policy but also motivated by the relationship between risk and yield. In recent years, the banking sector has strengthened its financial intermediation activities on the global level, and has favored operations to convert, divide and create financial instruments to lessen risk and improve profitability, giving greater preference to these endeavors than to traditional activities such as collecting savings and financing.15

A variety of research from Wolfson (2002), Girón and Chapoy (2009), Rapoport and Brenta (2010) has emphasized the sizeable pubic and private debt. This is a critical situation because it is not the result of demand for resources to finance productive activity, but rather it is mainly used to satisfy public spending and to fulfill previous financial commitments. This fact is more linked to Minsky’s financial instability hypothesis than to the arguments that back up the credit rationing theory. Minsky (1982) writes that investment decisions of companies are associated with their financial structures. Companies with solvency problems tend to have growing debt, and as such, the new resources they obtain are only used to cover interest payments for previous debts.

Credit rationing models in the current macroeconomic context are unable to explain the multiplicity of observed factors. However, as indicated, they suggest that credit rationing is based on the determinants of supply, more than anything else, and specifically on the preference of banking institutions to concentrate their operations in other areas that yield higher earnings and lower risks.

15 According to the International Payment Bank, investment operations from financial institutions in capital bonds, in government bonds and in derived products increased notably between the years 2006 and 2011. In the United States, for example, debt bonds increased from $3,282 billion dollars in 2006 to $5,569 billion in 2011. If the figures for the evolution of debt on a global level are compared between 2000 and 2011, it is clear that their magnitude more than tripled. For governments, the corresponding figures were $964.5 billion dollars constant (2010=100) against $2,596.3 billion in 2011. For companies, they were $1,045.2 against $3,756.8. For financial institutions debt went from $4,860.2 in 2000 to $421,688.75 billion in 2011. On the other side, based on data from Bank of Mexico, it can be observed that an important part of commercial banking assets in recent years comes from the credit portfolio (more than 35%), but also from owning debt bonds (government bonds) and capital bonds (30%) as well as derived bonds (10%). In other words, these last two items represent 40% of assets.

Published in Mexico, 2012-2017 © D.R. Universidad Nacional Autónoma de México (UNAM).
PROBLEMAS DEL DESARROLLO. REVISTA LATINOAMERICANA DE ECONOMÍA, Volume 48, Number 191, October-December 2017 is a quarterly publication by the Universidad Nacional Autónoma de México, Ciudad Universitaria, Coyoacán, CP 04510, México, D.F. by Instituto de Investigaciones Económicas, Circuito Mario de la Cueva, Ciudad Universitaria, Coyoacán,
CP 04510, México, D.F. Tel (52 55) 56 23 01 05 and (52 55) 56 24 23 39, fax (52 55) 56 23 00 97, www.probdes.iiec.unam.mx, revprode@unam.mx. Journal Editor: Alicia Girón González. Reservation of rights to exclusive use of the title: 04-2012-070613560300-203, ISSN: pending. Person responsible for the latest update of this issue: Minerva García, Circuito Maestro Mario de la Cueva s/n, Ciudad Universitaria, Coyoacán, CP 04510, México D.F., latest update: Nov 13th, 2017.
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