Abstract
This paper studies a chained credit contract based on Hirakata etal. (2013) in which investors lend funds to banks and banks lend to entrepreneurs in an imperfect financial market. We show that the optimality condition of this contract has a simple, symmetric structure analogous to the one in Bernanke, Gertler and Gilchrist (1999), and that the external finance premium is increasing in both the entrepreneurs' and the bank's capital to net worth ratio. We apply the chained credit contract to analyse global banks, and show that the common lender effect drives the positive comovement of the external finance premia across economies.
Original language | English |
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Pages (from-to) | 87-90 |
Number of pages | 4 |
Journal | Economics Letters |
Volume | 129 |
Early online date | 10 Feb 2015 |
DOIs | |
Publication status | Published - Apr 2015 |
Scopus Subject Areas
- Finance
- Economics and Econometrics
User-Defined Keywords
- Financial accelerators
- Banks
- Chained credit contracts