The Rise of Non-Regulated Financial Intermediaries in the Housing Sector and its Macroeconomic Implications
Staff Working Papers from Bank of Canada
I examine the impact of non-regulated lenders in the mortgage market using a dynamic stochastic general equilibrium (DSGE) model. My model features two types of financial intermediaries that differ in three ways: (i) only regulated intermediaries face a capital requirement, (ii) non-regulated intermediaries finance themselves by selling securities and cannot accept deposits, and (iii) non-regulated intermediaries face a more elastic demand. This last assumption is based on empirical evidence for Canada revealing that non-regulated intermediaries issue loans at a lower interest rate. My results suggest that the non-regulated sector contributes to stabilize the economy by providing an alternative source of capital when the regulated sector in unable to fulfill the demand for credit. As a result, an economy with a large non-regulated sector experiences a smaller downturn after an adverse financial shock.
Keywords: Business fluctuations and cycles; Economic models; Financial system regulation and policies; Housing (search for similar items in EconPapers)
JEL-codes: E32 E44 E47 E60 G21 G23 G28 (search for similar items in EconPapers)
Pages: 47 pages
New Economics Papers: this item is included in nep-ban, nep-dge, nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:17-36
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