Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality
AbstractThe present paper contributes to the body of knowledge on search frictions in credit markets by demonstrating their ability to explain why the net interest margins of banks behave countercyclically. During periods of expansion, a fall in the net interest margin proceeds from two mechanisms: (i) lenders accept that they must finance entrepreneurs that have lower productivity and (ii) the liquidity of the credit market rises, which simplifies access to loans for entrepreneurs and thereby reinforces their threat point when bargaining the interest rate of the loan.
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Bibliographic InfoPaper provided by CEPII research center in its series Working Papers with number 2013-41.
Date of creation: Dec 2013
Date of revision:
Search Friction; Matching Model; Nash Bargaining; Bank Interest Margin;
Find related papers by JEL classification:
- C78 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Bargaining Theory; Matching Theory
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-20 (All new papers)
- NEP-BAN-2013-12-20 (Banking)
- NEP-DGE-2013-12-20 (Dynamic General Equilibrium)
- NEP-MAC-2013-12-20 (Macroeconomics)
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