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Bank Lending and Interest Rate Changes in a Dynamic Matching Model
Author:
Mr. Giovanni Dell'Ariccia
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Mr. Pietro Garibaldi
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Series:
IMF Working Papers
Volume/Issue:
Volume 1998: Issue 093
Language:
English
Publication Date:
01 Jun 1998
DOI:
https://doi.org/10.5089/9781451951318.001
ISBN:
9781451951318
ISSN:
1018-5941
Pages:
46
Keywords:
WP; interest rate; money market; Bank Lending; Monetary Transmission Mechanism; Matching Models; interest rate change; equilibrium allocation; decision rule; oligopoly power; allocation decision; optimal portfolio allocation; value function; Money markets; Bank credit; Loans; Credit; Self-employment
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund