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Financial crises and shadow banks: A quantitative analysis

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  • Rottner, Matthias

Abstract

Motivated by the build-up of shadow bank leverage prior to the financial crisis of 2007–2008, I develop a nonlinear macroeconomic model featuring excessive leverage accumulation and endogenous runs to capture the dynamics and quantify the build-up of instability. Incorporating monetary policy, I demonstrate that the zero lower bound increases the crises frequency and lowers welfare. The model is taken to U.S. data to estimate the run probability around the financial crisis of 2007–2008. The estimated run risk was already considerable in 2005 and kept increasing. Counterfactual simulations evaluate whether monetary interventions boost welfare and could have averted the financial crisis.

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  • Rottner, Matthias, 2023. "Financial crises and shadow banks: A quantitative analysis," Journal of Monetary Economics, Elsevier, vol. 139(C), pages 74-92.
    • Handle: RePEc:eee:moneco:v:139:y:2023:i:c:p:74-92
    DOI: 10.1016/j.jmoneco.2023.06.006
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    Cited by:

    1. Darracq Pariès, Matthieu & Kok, Christoffer & Rottner, Matthias, 2023. "Reversal interest rate and macroprudential policy," European Economic Review, Elsevier, vol. 159(C).
    2. Lei, Ningze & Huang, Liqiang, 2023. "Corporate financing from shadow banking and bond credit spreads," Finance Research Letters, Elsevier, vol. 58(PB).

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    More about this item

    Keywords

    JEL classification; E32; E44; G23; Financial crises; Leverage; Nonlinear estimation; Zero lower bound; Monetary policy;
    All these keywords.

    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
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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