The macroeconomics of shadow banking

Alberto Botta, Eugenio Caversazi and Daniele Tori

No PKWP1611, Working Papers from Post Keynesian Economics Society (PKES)

Abstract: In this paper, we propose a simple short-run post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. At the best of our knowledge, this is the first attempt to broaden purely real-side post-Keynesian models and their traditional focus on shareholder-value orientation, the financialization of non-financial firms, and the profit-led vs wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007-8 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution. We show that both an ‘exhilarationist’ and a ‘stagnationist’ regime may prevail, nevertheless characterized by a probable increase in income inequality between rentiers and wage earners.

Keywords: securitization; shadow banking; leverage; rentiers-led regimes; income distribution (search for similar items in EconPapers)
JEL-codes: E02 E12 G23 (search for similar items in EconPapers)
Pages: 31
Date: 2016-06
New Economics Papers: this item is included in nep-mac and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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https://postkeynesian.net/media/working-papers/PKWP1611_7CTLkIa.pdf First version, 2016 (application/pdf)

Related works:
Journal Article: THE MACROECONOMICS OF SHADOW BANKING (2020)
Working Paper: The macroeconomics of shadow banking (2016)
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