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Shadow banks and macroeconomic instability

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  • Roland Meeks
  • Benjamin Nelson
  • Piergiorgio Alessandri

Abstract

We develop a macroeconomic model in which commercial banks can offload risky loans to a ‘shadow’ banking sector, and financial intermediaries trade in securitized assets. We analyze the responses of aggregate activity, credit supply and credit spreads to business cycle and financial shocks. We find that: interactions and spillover effects between financial institutions affect credit dynamics; high leverage in the shadow banking system makes the economy excessively vulnerable to aggregate disturbances; and following a financial shock, stabilization policy aimed solely at the securitization markets is relatively ineffective.

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Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2013-78.

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Length: 61 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:een:camaaa:2013-78

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  1. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: What do we know, and what does it mean?," CAMA Working Papers 2010-26, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: what do we know, and what does it mean?," Finance and Economics Discussion Series 2010-44, Board of Governors of the Federal Reserve System (U.S.).
  3. Den Haan, Wouter & Sterk, Vincent, 2009. "The Myth of Financial Innovation and the Great Moderation," CEPR Discussion Papers 7507, C.E.P.R. Discussion Papers.
  4. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  5. Jose M. Berrospide & Rochelle M. Edge, 2010. "The Effects of Bank Capital on Lending: What Do We Know, and What Does It Mean?," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 1-50, December.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Shadow banks and macroeconomic instability
    by Christian Zimmermann in NEP-DGE blog on 2013-12-28 04:15:39
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Cited by:
  1. Tobias Adrian & Adam B. Ashcraft & Nicola Cetorelli, 2013. "Shadow bank monitoring," Staff Reports 638, Federal Reserve Bank of New York.
  2. Noss, Joseph & Toffano, Priscilla, 2014. "Estimating the impact of changes in aggregate bank capital requirements during an upswing," Bank of England working papers 494, Bank of England.

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