Financial Regulation and Shadow Banking

Fève, Patrick, Moura, Alban and Pierrard, Olivier (2019) Financial Regulation and Shadow Banking: A Small-Scale DSGE Perspective. Journal of Economic Dynamics and Control, vol. 101. pp. 130-144.

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Official URL: http://tse-fr.eu/pub/33358

Abstract

This paper estimates a small-scale DSGE model of the US economy with interacting traditional and shadow banks. We find that shadow banks amplify the transmission of structural shocks by helping escape constraints from traditional intermediaries. We show how this leakage toward shadow entities reduces the ability of macro-prudential policies targeting traditional credit to reduce economic volatility. A counterfactual experiment suggests that a countercyclical capital buffer, if applied only to traditional banks, would have in fact amplified the boom-bust cycle associated with the financial crisis of 2007-2008. On the other hand, a broader regulation scheme targeting both traditional and shadow credit would have helped stabilize the economy.

Item Type: Article
Sub-title: A Small-Scale DSGE Perspective
Language: English
Date: April 2019
Refereed: Yes
Uncontrolled Keywords: Shadow Banking, DSGE models, Macro-prudential Policy
JEL codes: C32 - Time-Series Models
E32 - Business Fluctuations; Cycles
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 06 Feb 2019 14:45
Last Modified: 04 Apr 2019 04:03
OAI ID: oai:tse-fr.eu:33358
URI: http://publications.ut-capitole.fr/id/eprint/31273

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