With loan commitments negotiated in advance, the use of tight money to restrain nominal spending has asymmetric effects upon different categories of borrowers. This can reduce efficiency, even though aggregate demand is stabilized. This is illustrated in the context of an equilibrium model of...

This paper, after providing a critique of standard monetary theory based on the transactions demand for money, examines the effect of monetary policy (changes in reserve requires and open market operations) in a model with competitive, risk averse banks. The effects of changes in bank net worth...

This paper provides a critique of standard theories of money, in particular those based on money as a medium of exchange. Money is important because of the relationship between money and credit. The process of judging credit worthiness, in which banks play a central role, involves the collection...

This paper presents and alternative perspective on the role of banks. We emphasize the ways in which banks act as social accountants and screening devices. In this view monetary disturbances have their effects through the disturbances which they induce in society's accounting system and in the...

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...

This paper examines the allocation of credit in a market in which borrowers have greater information concerning their own riskiness than do lenders. It illustrates (1) the allocation of credit is inefficientand at times can be improved by government intervention, and (2) small changes in the...

We explore the connection between money, banks, and aggregate credit. We start with a simple real' model without money, where banks make loans repayable in goods and depositors hold claims on the bank payable on demand in goods. Aggregate production may be delayed in the economy. If so, we show...

We study models of credit with limited commitment, which implies endogenous borrowing constraints. We show that there are multiple stationary equilibria, as well as nonstationary equilibria, including some that display deterministic cyclic and chaotic dynamics. There are also stochastic...

In the aftermath of the Great Recession, there is a growing consensus, even among central bank officials, concerning the limitations of monetary policy. This paper provides an explanation for the ineffectiveness of monetary policy, and in doing so provides a new framework for thinking about...

We exploit a volcanic “experiment" to study the costs and benefits of geographic mobility. We show that moving costs (broadly defined) are very large and labor therefore does not flow to locations where it earns the highest returns. In our experiment, a third of the houses in a town were...