Financial Matchmakers in Credit Markets with Heterogeneous Borrowers

Zsolt Becsi (), Victor Li and Ping Wang
Additional contact information
Victor Li: US Naval Academy

No 32, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: What happens when liquidity increases in credit markets and more funds are channeled from borrowers to lenders? We examine this question in a general equilibrium model where financial matchmakers help borrowers (firms) and lenders (households) search out and negotiate profitable matches and where the composition of heterogeneous borrowers adjusts to satisfy equilibrium entry conditions. We find that enhanced liquidity causes entry by all borrowers and tends to benefit low quality borrowers disproportionately. However, liquid credit markets may or may not be associated with higher output and welfare. The result is determined by whether the effect of higher market participation outweighs that of lower average quality. The net effect depends crucially on the source of the liquidity shock (financial matching efficacy, productivity, or entry barriers).

Keywords: Credit search; assortive financial matchmaking; market participation versus composition effects (search for similar items in EconPapers)
JEL-codes: C78 G21 (search for similar items in EconPapers)
Date: 2000-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.accessecon.com/pubs/VUECON/vu00-w32R.pdf Revised version, 2002 (application/pdf)

Related works:
Working Paper: Financial matchmakers in credit markets with heterogeneous borrowers (2000)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:0032

Access Statistics for this paper

More papers in Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by John P. Conley ().