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

Author

Listed:
  • Kévin Beaubrun-Diant

    (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Fabien Tripier

    (CLERSÉ - Centre Lillois d’Études et de Recherches Sociologiques et Économiques - UMR 8019 - Université de Lille - CNRS - Centre National de la Recherche Scientifique, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique)

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.

Suggested Citation

  • Kévin Beaubrun-Diant & Fabien Tripier, 2015. "Search Frictions, Credit Market Liquidity, and Net Interest Margin Cyclicality," Post-Print hal-01515427, HAL.
    • Handle: RePEc:hal:journl:hal-01515427
    DOI: 10.1111/ecca.12101
    Note: View the original document on HAL open archive server: https://hal.science/hal-01515427
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    Cited by:

    1. 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.
    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. Fabien Tripier, 2014. "A Search-Theoretic Approach to Efficient Financial Intermediation," Working Papers 2014-18, CEPII research center.
    4. 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.
    5. 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.

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    More about this item

    Keywords

    Search Friction; Matching Model; Nash Bargaining; Bank Interest Margin;
    All these keywords.

    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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