Monetary policy effects on financial intermediation via the regulated and the shadow banking systems

Falk Mazelis

No 2014-056, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: We extend the monetary DSGE model by Gertler and Karadi (2011) with a non-bank financial intermediary to investigate the impact of monetary policy shocks on aggregate loan supply. We distinguish between bank and non-bank intermediaries based on the liquidity of their credit claims. While banks can endogenously create deposits to fund rm loans, non-banks have to raise deposits on the funding market to function as intermediaries. The funding market is modeled via search and matching by non-banks for available deposits of households. Because deposit creation responds to economy-wide productivity automatically, bank reaction to shocks corresponds to the balance sheet channel. Non-banks are constrained by the available deposits and their behavior is better explained by the lending channel. The two credit channels are affcted differently following a monetary policy shock. As a result of these counteracting effects, an increasing non-bank sector leads to a reduced reaction of aggregate loan supply following a monetary policy shock, which is consistent with the data. An extension to deposit like-issuance by the non-bank sector will allow further studies of re-regulating the non-bank sector.

Keywords: Shadow Banking; Monetary Transmission Mechanism; Credit Channel (search for similar items in EconPapers)
JEL-codes: E32 E44 E51 G20 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2014-056

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