Why do advanced economies fall into prolonged periods of economic stagnation, particularly in the aftermath of credit booms? We present a model of persistent aggregate demand shortage based on strong liquidity preferences of households, in which we incorporate financial imperfections to study...

We identify the origin of the contradicting perspectives on credit creation offered by Austrian, Mainstream and Post Keynesian economists as the neglect of the primacy of such assets as goods, properties and securities, which always pre-exist any transaction and loan. We develop a unified...

A variety of empirical and theoretical evidence published in recent years suggests that frictions in credit markets are crucial to understand the monetary transmission mechanism. The objective of this paper is to provide a quantitative evaluation of the credit view interpretation of this...

This paper presents a full model of the Credit Channel of the monetary transmission mechanism. In particular, the special role of the banking sector is derived endogenously and special attention is paid to the role of borrowers' net worth. A debt contracting problem with asymmetric information...

The goal of theoretical economics is to explain how the monetary economy works. The fatal methodological defect of Orthodoxy is that it is based on behavioral axioms. Yet, no specific behavioral assumption whatever can serve as a starting point for economic analysis. From this follows for...

This paper develops a model of an economy where bank credit supports both productive investment and individual consumption smoothing in the face of idiosyncratic income risk. Bank credit is constrained by bank equity capital. When policy-makers inject equity capital during financial crises, they...

Based on survey data covering 6,547 firms in 10 Central and Eastern European countries we examine the impact of the banking sector environment, as well as the institutional and regulatory environment, on credit constrained firms. We find that small and foreign-owned firms are less likely to...

A central proposition in research on the role that banks play in the transmission mechanism is that monetary policy imparts a direct impact on deposits and that deposits, insofar as they constitute the supply of loanable funds, act as the driving force of bank lending. This paper argues that the...