Financial Regulation and Shadow Banking: A Small-Scale DSGE Perspective

Patrick Fève, Alban Moura and Olivier Pierrard

No 17-829, TSE Working Papers from Toulouse School of Economics (TSE)

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.

Keywords: Shadow Banking; DSGE models; Macro-prudential Policy (search for similar items in EconPapers)
JEL-codes: C32 E32 (search for similar items in EconPapers)
Date: 2017-07, Revised 2018-08
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Shadow banking and financial regulation: A small-scale DSGE perspective (2019)
Working Paper: Financial Regulation and Shadow Banking: A Small-Scale DSGE Perspective (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:31822

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