Abstract

The paper discusses and criticizes the credit rationing model (CRM) and its use
to support the new-Keynesian approach to the monetary policy. After analyzing the working
of the model in the different phases of the business cycle it is concluded that: (i) in the
upward phase, demand rationing equilibrium — which is a condition for recommendation
of counter-cyclical monetary policy in the CRM scope — is not plausible as a macroeconomic
phenomenon, but only at microeconomic level; (ii) in the downward phase, although
the demand rationing is a plausible equilibrium, it does not occur for the reason alleged by the CRM (the rigidity of the interest rate), neither it does act in favour of the transmission
mechanism of monetary policy. These conclusions imply the rejection of the CRM as theoretical
basis for monetary policy analysis, as well as of the new-Keynesian approach about this
theme. Finally, it is argued that, at macroeconomic level, the unique theoretical contribution
of the CRM is to justify “vertical” interventions of government in financial markets, through
financing policies to sectors or projects which risks are more difficult to estimate, notably, in
infra-structure, R&D and new-technology sectors.

JEL Classification: E12; G21; G31.