Credit Market Frictions and Coessentiality of Money and Credit

We explore how credit market frictions matter for the coessentiality of money and credit. Limited commitment calls limits that are tailored according to borrowers' productivity. Under an adverse selection problem caused by asymmetric information, however, lenders impose limit low-productivity borrower onto high-productivity borrower. If productivities differ sufficiently between borrowers, is credit-constrained willing hold compensate deficiency their limit, whereas not. This implies in sense simultaneous use improves welfare.