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Shadow banking and financial intermediation

Gökçer Özgür

Metroeconomica, 2021, vol. 72, issue 4, 731-757

Abstract: This article investigates the nature of shadow banking and its effects on bank lending and funding conditions in the U.S. financial markets. It, first, reviews the main instruments of this credit intermediation and the procyclical patterns in it. Second, it estimates two indicators of shadow banking activities and uses these indicators in Markov‐switching (MS) and vector autoregressive models. The MS models detect two regimes for bank lending, and these regimes reflect the expansion and contraction phases of bank lending cycles. Shadow banking is positively (negatively) associated with bank lending in the expansion (contraction) phases. Another model that uses impulse‐response analysis shows that shadow banking has a positive effect on the risk premium and a negative effect on term spread.

Date: 2021
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