Download or read book Bank Lending and Interest Rate Changes in a Dynamic Matching Model written by Mr.Giovanni Dell'Ariccia and published by International Monetary Fund. This book was released on 1998-06-01 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.