RT Journal Article
T1 Search for Yield
A1 Martínez-Miera, David
A1 Repullo Labrador, Rafael
AB We present a model of the relationship between real interest rates, credit spreads, and the structure and risk of the banking system. Banks intermediate between entrepreneurs and investors, and can monitor entrepreneurs projects. We characterize the equilibrium for a  xed aggregate supply of savings, showing that safer entrepreneurswill be funded by nonmonitoring banks and riskier entrepreneurs by monitoring banks. We show that an increase in savings reduces interest rates and spreads, increases the relative size of the nonmonitoring banking system and the probability of failure of monitoring banks. We also show that the dynamic version of the model exhibits endogenous boom and bust cycles, and rationalizes the existence of countercyclical risk premia and the connection between low interest rates, credit spreads, and the buildup of risks during booms.
PB Econometric Society
SN 0012-9682
YR 2017
FD 2017-03
LK https://hdl.handle.net/10016/33621
UL https://hdl.handle.net/10016/33621
LA eng
NO Financial support from the Spanish Ministry of Economy and Competitiveness, Grants No. ECO2014-59262-P (Repullo) and ECO2013-42849-P (Martinez-Miera), and from Banco de España (Martinez-Miera) is gratefully acknowledged.
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RD 27 jul. 2024