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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. Adrian, Tobias & Song Shin, Hyun, 2010. "Financial Intermediaries and Monetary Economics," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 12, pages 601-650 Elsevier.
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