Mindset of Finance

School of Economics

University of Nottingham

Nottingham, NG7 2RD

United Kingdom

e-mail: spiros.bougheas@nottingham.ac.uk

30 January 2002

We develop and analyse a simple general equilibrium model with

capital market imperfections We find that the impact of monetary

policy on real economic activity depends on the initial distribution

of wealth in the economy. Changes in the opportunity cost of funds

affect not only the choice of financial source but also the decisions

of agents to become entrepreneurs. We also identify a number of

new issues that can potentially be addressed by following our general

equilibrium approach.

Key Words: Income Distribution, Imperfect Capital Markets,

Credit Channel

JEL Classification Codes: G20, E44

Acknoledgements: I would like to thank participants at the 2002

European Econometric Society meeting for their helpful comments and

suggestions.