Monetary policy shocks in a DSGE model with a shadow banking system
This 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.
|Date of creation:||Feb 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.fep.up.pt/Email:
More information through EDIRC
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.:
- Javier Andrés & Oscar Arce, 2012.
"Banking Competition, Housing Prices and Macroeconomic Stability,"
Royal Economic Society, vol. 122(565), pages 1346-1372, December.
- Javier Andrés & Óscar J. Arce, 2009. "Banking competition, housing prices and macroeconomic stability," Banco de Espa�a Working Papers 0830, Banco de Espa�a.
- Skander Van den Heuvel, 2005.
"The Welfare Cost of Bank Capital Requirements,"
2005 Meeting Papers
880, Society for Economic Dynamics.
- Roger Aliaga‐Díaz & María Pía Olivero, 2010. "Macroeconomic Implications of “Deep Habits” in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(8), pages 1495-1521, December.
- Werner F. M. De Bondt & Richard H. Thaler, 1994. "Financial Decision-Making in Markets and Firms: A Behavioral Perspective," NBER Working Papers 4777, National Bureau of Economic Research, Inc.
- Fiorella De Fiore & Harald Uhlig, 2005.
"Bank finance versus bond finance: what explains the differences between US and Europe?,"
SFB 649 Discussion Papers
SFB649DP2005-042, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- 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.
- 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.
When requesting a correction, please mention this item's handle: RePEc:por:cetedp:1101. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ana Bonanca)
If references are entirely missing, you can add them using this form.