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Search Frictions, Credit Market Liquidity and Net Interest Margin Cyclicality

Author

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  • Kevin E. Beaubrun-Diant
  • Fabien Tripier

Abstract

type="main" xml:id="ecca12101-abs-0001" xml:lang="en"> This 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 who have lower productivity; (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.

Suggested Citation

  • Kevin E. Beaubrun-Diant & Fabien Tripier, 2015. "Search Frictions, Credit Market Liquidity and Net Interest Margin Cyclicality," Economica, London School of Economics and Political Science, vol. 82(325), pages 79-102, January.
    • Handle: RePEc:bla:econom:v:82:y:2015:i:325:p:79-102
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    File URL: http://hdl.handle.net/10.1111/ecca.2014.82.issue-325
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    Cited by:

    1. Fabien Tripier, 2014. "A Search-Theoretic Approach to Efficient Financial Intermediation," Working Papers 2014-18, CEPII research center.
    2. Wei Cui & Sören Radde, 2020. "Search-based Endogenous Asset Liquidity and the Macroeconomy [Why Don’t US Issuers Demand European Fees for IPOs?]," Journal of the European Economic Association, European Economic Association, vol. 18(5), pages 2221-2269.
    3. Brand, Thomas & Isoré, Marlène & Tripier, Fabien, 2019. "Uncertainty shocks and firm creation: Search and monitoring in the credit market," Journal of Economic Dynamics and Control, Elsevier, vol. 99(C), pages 19-53.
    4. Danilo Liberati, 2018. "An estimated DSGE model with search and matching frictions in the credit market," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 11(6), pages 567-617.

    More about this item

    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

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