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Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality

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  • Beaubrun-Diant, Kevin
  • Tripier, Fabien

Abstract

The 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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File URL: http://basepub.dauphine.fr/xmlui/bitstream/123456789/13009/1/Search%20Frictions,%20Credit%20Market%20Liquidity,%20and%20Net%20%20Interest%20Margin%20Cyclicality.pdf
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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/13009.

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Date of creation: Dec 2013
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Publication status: Published in CEPII Working Paper, 2013
Handle: RePEc:dau:papers:123456789/13009

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Keywords: Search Friction; Matching Model; Nash Bargaining; Bank Interest Margin;

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  1. Ben R. Craig & Joseph G. Haubrich, 2000. "Gross loan flows," Working Paper 0014, Federal Reserve Bank of Cleveland.
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Cited by:
  1. Wei Cui & Sören Radde, 2014. "Search-Based Endogenous Illiquidity and the Macroeconomy," Discussion Papers of DIW Berlin 1367, DIW Berlin, German Institute for Economic Research.

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