ABSTRACT
This introduction presents an overview of the key concepts discussed in the subsequent chapters of this book. The book constructs a partial equilibrium model of the credit market in which the incentives to ration arise because of ex post information asymmetry. It shows that the intermediary's expected rate of return is necessarily smaller under rationing by loan size than under rationing by number. The book shows that the interest rate invariance proposition is, indeed, sensitive to the form that credit rationing takes. It develops a simple general equilibrium optimizing model in which credit, money, and the incentives to ration co-exist, but which omits the usual Keynesian sources of monetary non-neutrality. Most recent models of equilibrium credit rationing confine their attention to rationing by restricting the number of loans an intermediary makes rather than by restricting loan size.
