The Role of Shadow Banking in the Monetary Transmission Mechanism and the Business Cycle

Falk Mazelis

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: This paper investigates the heterogeneous impact of monetary policy shocks on financial intermediaries. I distinguish between traditional banks and shadow banks based on their ability to raise debt and equity funding. The functional form for both intermediaries imposes no constraints ex ante, but a Bayesian estimation of key parameters results in traditional banks having a comparative advantage at raising debt while shadow banks are better at raising equity. In line with empirical observations, shadow bank lending moves in the opposite direction to bank lending following monetary policy shocks, which mitigates aggregate credit responses. The recognition of a distinct shadow banking sector results in an amplified propagation of real shocks and a muted propagation of financial shocks. This identification can help in assessing effects of financial regulation on the economy. A historical shock decomposition highlights the roles of traditional banks and shadow banks in the run-up to the 2008 financial crisis.

JEL-codes: E32 E44 G20 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ban, nep-mac and nep-mon
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/145763/1/VfS_2016_pid_6788.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145763

Access Statistics for this paper

More papers in VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().