Download or read book Bank Lending and Interest Rate Changes in a Dynamic Matching Model written by Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a world with asymmetric information and other market imperfections, financial intermediaries provide credit to otherwise liquidity constrained agents. If lending without screening and monitoring entails large deadweight losses, and if market financing is prevented by free-rider problems, banks emerge as the only source of external financing for potentially productive agents (Diamond, 1984).1 As a result, the relationship between monetary perturbations and aggregate economic activity is necessarily linked to bank lending behavior. 2 However, the response of bank lending to positive and negative interest rate changes may be inherently different, and potentially asymmetric. Even though several papers have studied the asymmetric effects of monetary policy on real economic activity, little attention has been paid to the asymmetric response of bank lending to interest rate changes. 3.