Monetary policy shocks in a DSGE model with a shadow banking system
AbstractThis paper is motivated by the recent financial crisis and addresses whether a “too low for too long” interest rate policy may generate a boom-bust cycle. We suggest a model in which a microfounded shadow banking sector is included in an otherwise state-of-the-art DSGE model. When faced with perverse incentives, financial intermediaries within the shadow banking sector can divert a fraction of stockholders’ profits for their own benefits and extend credit at a discounted rate. The model predicts that long periods of accommodative monetary policy do create the preconditions for, but do not cause per se, a boom-bust cycle. Rather, it is the combination of a persistent monetary ease with microeconomic distortions in the financial system that causes a boom-bust.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series CEF.UP Working Papers with number 1101.
Length: 61 pages
Date of creation: Feb 2011
Date of revision:
monetary policy; DSGE model; shadow banking system; boom-bust;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-19 (All new papers)
- NEP-BAN-2011-02-19 (Banking)
- NEP-CBA-2011-02-19 (Central Banking)
- NEP-CIS-2011-02-19 (Confederation of Independent States)
- NEP-DGE-2011-02-19 (Dynamic General Equilibrium)
- NEP-MAC-2011-02-19 (Macroeconomics)
- NEP-MIC-2011-02-19 (Microeconomics)
- NEP-MON-2011-02-19 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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SFB 649 Discussion Papers
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- Harald Uhlig & Fiorella De Fiore, 2005. "Bank Finance versus Bond Finance: What Explains the Differences Between US and Europe?," 2005 Meeting Papers 618, Society for Economic Dynamics.
- De Fiore, Fiorella & Uhlig, Harald, 2005. "Bank finance versus bond finance: what explains the differences between US and Europe?," Working Paper Series 0547, European Central Bank.
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Monetary policy shocks in a DSGE model with a shadow banking system
by Christian Zimmermann in NEP-DGE blog on 2011-02-21 03:53:54
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