Bank Lending and Interest Rate Changes in a Dynamic Matching Model

Author/Editor:

Giovanni Dell'Ariccia ; Pietro Garibaldi

Publication Date:

June 1, 1998

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1998/093

Subject:

Bank credit Banking Credit Financial institutions Financial markets Labor Loans Money Money markets Self-employment

English

Publication Date:

June 1, 1998

ISBN/ISSN:

9781451951318/1018-5941

Stock No:

WPIEA0931998

Pages:

46

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