This paper outlines the development and exposits some of the central ideas and implications of asymmetric information in the credit market. Copyright 1993 by Blackwell Publishing Ltd and the Board of Trustees of the Bulletin of Economic Research

A credit market is introduced into an IS-LM model with wealth effects and the government budget constraint explicitly considered. The model is able to handle issues such as a credit market shock that would be impossible to examine in standard models without a credit market. The analysis of more...