From Loan Pushing to Credit Rationing: A Brief Note on Interest Shocks in a Model by Basu

BASU [1991], in his introduction, argues that the 1982 debt crisis can be interpreted as a transition from loan pushing to credit rationing induced by an interest shock. He analyzes how in international lending there can be equilibria with credit rationing and with loan pushing. He, and in fact the international credit literature, does not study how one of these regimes can give way to the oter although this is crucial for his suggested interpretation of the debt crisis. In this brief note, the conditions for such a transition from loan pushing to credit rationing are formulated within the framework of Basu's model.