International shadow banking and prudential capital controls

Christopher Johnson

Journal of International Money and Finance, 2021, vol. 119, issue C

Abstract: Shadow banks have recently led the growth in cross-border lending. With this in mind, I develop a two-country real business cycle model with commercial and shadow banking to study the business cycle implications and welfare effects of prudential capital controls. In my model, the presence of shadow banking results in leakages associated with capital controls. As a result, capital outflow restrictions result in a welfare loss in the policy source country, but a welfare improvement in the rival country. Capital inflow restrictions yield the opposite welfare effects for both countries.

Keywords: Shadow banking; Capital controls (search for similar items in EconPapers)
JEL-codes: E44 F41 F44 G01 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:119:y:2021:i:c:s0261560621001212

DOI: 10.1016/j.jimonfin.2021.102470

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