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The Impact of Shadow Banking on the Financial Stability: Evidence from G20 Countries

Author

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  • Zarei , Mehran

    (university of sistan and baluchestan, Department of Economics)

  • esfandiari , marziyeh

    (university of sistan and baluchestan)

  • Mirjalili , Seyed Hossein

    (Faculty of Economics, Institute for Humanities and Cultural Studies)

Abstract

Shadow banking is a term that came out of the financial crisis of 2007-2009. There is a belief that shadow banking was one of the crisis reasons. Because the excessive expansion of shadow banking endangers the financial stability of countries, this paper examines the impact of shadow banking on financial stability using data from 14 countries of the G20 during 2002-2018. We divided countries into four groups according to the level of shadow banking activity; then, we employed the quantile regression method. The results indicated that shadow banking hurts financial stability (positive impact on financial instability) in countries with a high shadow banking index (fourth group countries). One unit of increase in the shadow banking index increases financial instability in the fourth group countries (high shadow banking) by 1.6 units. But in countries where shadow banking is not very strong (other three groups), shadow banking does not significantly affect financial stability.

Suggested Citation

  • Zarei , Mehran & esfandiari , marziyeh & Mirjalili , Seyed Hossein, 2021. "The Impact of Shadow Banking on the Financial Stability: Evidence from G20 Countries," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(2), pages 237-252, June.
    • Handle: RePEc:mbr:jmonec:v:16:y:2021:i:2:p:237-252
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    References listed on IDEAS

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    More about this item

    Keywords

    Shadow Banking; Financial Stability; Quantile Regression; G20;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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