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Bank Lending and Interest Rate Changes in a Dynamic Matching Model

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  • Giovanni Dell'Ariccia
  • Pietro Garibaldi

Abstract

This paper presents theory and evidence on the dynamic relationship between aggregate bank lending and interest rate changes. Theoretically, it proposes and solves a stochastic matching model where credit expansion and contraction are time consuming. It shows that the response of bank lending to changes in money market rates is likely to be asymmetric and depends crucially on two structural parameters: the speed at which new loans become available, and the speed at which banks recall existing loans. Empirically, it provides evidence that bank lending in Mexico and the United States responds asymmetrically to positive and negative shocks in money market rates.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 98/93.

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Length: 46
Date of creation: 01 Jun 1998
Date of revision:
Handle: RePEc:imf:imfwpa:98/93

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Cited by:
  1. Marlène Isoré, 2011. "International Propagation of Financial Shocks in a Search and Matching Environment," FIW Working Paper series 068, FIW.
  2. Ben R. Craig & Joseph G. Haubrich, 2013. "Gross Loan Flows," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(2-3), pages 401-421, 03.
  3. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Liquidity Flows and Fragility of business Enterprises," University of California at San Diego, Economics Working Paper Series qt3d899423, Department of Economics, UC San Diego.
  4. Herrera, Ana Maria & Kolar, Marek & Minetti, Raoul, 2011. "Credit reallocation," Journal of Monetary Economics, Elsevier, vol. 58(6), pages 551-563.
  5. Florio, Anna, 2006. "The asymmetric effects of monetary policy in a matching model with a balance sheet channel," Journal of Macroeconomics, Elsevier, vol. 28(2), pages 375-391, June.
  6. Luis Araujo & Raoul Minetti, 2012. "Credit Crunches, Asset Prices and Technological Change," Working Papers CASMEF 1204, Dipartimento di Economia e Finanza, LUISS Guido Carli.

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