Quantity rationing of credit, when some firms are denied loans, has macroeconomics effects not fully captured by measures of borrowing costs. This paper develops a monetary DSGE model with quantity rationing and derives a Phillips Curve relation where inflation dynamics depend on excess...

Quantity rationing of credit, when firms are denied loans, has greater potential to explain macroeconomic fluctuations than borrowing costs. This paper develops a DSGE model with both types of financial frictions. A deterioration in credit market confidence leads to a temporary change in the...