Credit rationing, once a major issue of debate in the literature on banking, has moved out of the spotlight since the mid-1990s. If interest in the matter has waned, it is not because inquiry reached an analytical dead end or, on the contrary, achieved definitive results. Although the numerous attempts made in the 1960s and 1970s to explain positive excesses in credit demand at the equilibrium interest rate proved unfruitful, at the turn of the 1980s the fundamental works of Keeton (1979, ch. 3) and Stiglitz and Weiss (1981) provided a rigorous, if restrictive, justification of equilibrium credit rationing in the presence of ex ante asymmetries of information between a lending bank and a subset of borrowers with projects entailing different but, for the bank, indistinguishable degrees of risk.
These contributions marked a watershed, ushering in a second, fruitful phase of research testing the robustness of the results reached under less restrictive assumptions than those required by Stiglitz and Weiss. The outcome was a weakening of the possibility of rationing. Further inquiry did not ensue, however, and the issue of credit rationing gradually moved to the backburner both in the theoretical literature and as a policy tool.
A first objective of this paper is to show that the lapse of interest in credit rationing has carried high costs for the study of unemployment equilibria, blocking a promising way to solve the problems opened by the legacy of the "neoclassical synthesis". Until now economic theory has been unable to construct robust aggregate general models with unemployment, and has fallen back on exogenous price and quantity constraints. By contrast, the integration of credit rationing into a general model could determine unemployment equilibria based on endogenous quantity constraints. The second objective of our paper is to pursue this integration. Accordingly, we propose a simple model in which we obtain credit rationing and unemployment equilibria.
The rest of the paper is organized as follows. In Section 2 we review some of the traditional macroeconomic models of the neoclassical synthesis in order to show that the analytical fragility of the unemployment equilibrium in general models stems from its being based on exogenous price and quantity constraints. The recent contributions of the new Keynesian economics, based on imperfect markets and endogenous rigidities, solve only a part of the problems bequeathed by the neoclassical synthesis.
Accordingly, in Section 3 we revisit the salient points of the debate on credit rationing, which introduces endogenous quantity constraints into the financial markets without other exogenous rigidities. In Section 4 we proceed to construct a simple aggregate general equilibrium model with credit rationing and demonstrate its relevance to the unemployment problem at hand. As we show in Section 5, in our model unemployment equilibria can be reached that do not depend on the assumption of limited downward flexibility of real wages. In Section 6 we summarize our results and outline some possible implications of the line of research presented.
