Document Type

Journal Article

Department/Unit

Department of Economics

Language

English

Abstract

© 2015 Elsevier B.V. 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.

Keywords

Banks, Chained credit contracts, Financial accelerators

Publication Date

4-2015

Source Publication Title

Economics Letters

Volume

129

Start Page

87

End Page

90

Publisher

Elsevier

Peer Reviewed

1

Copyright

Copyright © 2015 Elsevier B.V. All rights reserved.

DOI

10.1016/j.econlet.2015.02.004

ISSN (print)

01651765

Available for download on Tuesday, May 01, 2018

Additional Files

JA-5290-27868_figure1.eps (14 kB)

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