Chapter 11: Some evidence on the empirical significance of credit rationing
11. Some evidence on the empirical significance of credit rationing1 Allen N. Berger and Gregory F. Udell I. INTRODUCTION The subject of credit rationing is the focus of a considerable body of theoretical analysis. One reason for this interest is the potentially important role that credit rationing may play in the transmission of monetary policy. Advocates of the availability doctrine in the 1950s suggested that monetary policy may operate in part through a rationing channel rather than an interest rate channel (e.g., Kareken, 1957; Scott, 1957). This early work on credit rationing depended on ad hoc price rigidity arguments for its motivation. Later work by Jaffee and Russell (1976) and Stiglitz and Weiss (1981) demonstrated that credit rationing may persist in equilibrium using information-based models. These papers spawned an entire generation of work on credit rationing based on an information-theoretic approach (e.g., Blinder and Stiglitz, 1983; Wette, 1983; Besanko and Thakor, 1987a, 1987b; Williamson, 1987). Despite these theoretical efforts, there remains little consensus about whether credit rationing is an economically significant phenomenon. Riley (1987) argued that credit rationing in a StiglitzÐWeiss environment would be limited to the marginal class of observably distinct risk pools. Stiglitz and Weiss (1987) countered that RileyÕs result was model-specific rather than general. Others have argued that contractual mechanisms may be available that mitigate the rationing problem. These mechanisms include loan commitments (see Boot and Thakor, 1989; Sofianos, Wachtel, and Melnik, 1990) and collateral (see Bester, 1985; Chan and Kanatas, 1985; Besanko and Thakor,...
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