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

  • Beaubrun-Diant, Kevin
  • Tripier, Fabien

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: Jan 2015
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Publication status: Published in Economica, 2015, Vol. 82, no. 325. pp. 79-102.Length: 23 pages
Handle: RePEc:dau:papers:123456789/13009
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. 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.
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  13. Robert Kollmann, 2012. "Global Banks, Financial Shocks and International Business Cycles: Evidence from Estimated Models," 2012 Meeting Papers 840, Society for Economic Dynamics.
  14. Bertola, Giuseppe & Caballero, Ricardo J, 1994. "Cross-Sectional Efficiency and Labour Hoarding in a Matching Model of Unemployment," Review of Economic Studies, Wiley Blackwell, vol. 61(3), pages 435-56, July.
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  16. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  17. Christophe Chamley & Céline Rochon, 2011. "From Search to Match: When Loan Contracts Are Too Long," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 385-411, October.
  18. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(04), pages 581-600, November.
  19. Jo�O A. C. Santos & Andrew Winton, 2008. "Bank Loans, Bonds, and Information Monopolies across the Business Cycle," Journal of Finance, American Finance Association, vol. 63(3), pages 1315-1359, 06.
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