Search Results
Showing results 1 to 2 of approximately 2.
(refine search)
Working Paper
Interest Rate Dynamics, Variable-Rate Loan Contracts, and the Business Cycle
The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment. We show that a Kiyotaki-Moore model accounts for both properties when business-cycle movements are driven, in a significant way, by animal spirit shocks to credit-financed investment demand. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the dynamic correlation between current loanable funds rate ...
How Changing Interest Rates Affect Variable-Rate Loans to U.S. Firms
Data suggest that lending activity in variable-rate bank loans to U.S. firms responds more strongly to rising and falling benchmark interest rates like LIBOR.