Bank Lending and Interest Rate Changes in a Dynamic Matching Model

By Giovanni Dell'Ariccia, Pietro Garibaldi

June 1, 1998

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Giovanni Dell'Ariccia, and Pietro Garibaldi. Bank Lending and Interest Rate Changes in a Dynamic Matching Model, (USA: International Monetary Fund, 1998) accessed September 23, 2024

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.

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

Keywords: Allocation decision, Bank credit, Bank Lending, Credit, Decision rule, Equilibrium allocation, Interest rate, Interest rate change, Loans, Matching Models, Monetary Transmission Mechanism, Money market, Money markets, Oligopoly power, Optimal portfolio allocation, Self-employment, Value function, WP

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1998/093
Stock No:

WPIEA0931998
ISBN:

9781451951318
ISSN:

1018-5941

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