The Credit Spread Cycle with Matching Frictions
Tripier, Fabien; Beaubrun-Diant, Kevin (2009-09), The Credit Spread Cycle with Matching Frictions. https://basepub.dauphine.fr/handle/123456789/1849
TypeDocument de travail / Working paper
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Abstract (EN)This article contributes to the theoretical literature on financial frictions showing the relevance of the matching mechanism in explaining the countercyclical behavior of interest rate spreads on the credit market, as a measure of the cost of external finance. We demonstrate that matching frictions, associated with a Nash bargaining process, explain the credit spread cycle in response of shocks either on the aggregate technology or on the cost of banks resources. The countercyclical behavior of the credit spread proceeds from the cyclical variations of (i) the financing opportunities for the entrepreneurs on the credit market and (ii) the reservation productivity of matches decided by entrepreneurs and banks. Our results show also that shocks effects are amplified and propagated by matching frictions, which is synonymous with a quite powerful financial accelerator mechanism.
Subjects / KeywordsMatching frictions; Business cycles; Credit spread; Credit market imperfections
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