EconPapers    
Economics at your fingertips  
 

Capturing macroprudential regulation effectiveness: A DSGE approach with shadow intermediaries

Federico Lubello and Abdelaziz Rouabah ()

No 114, BCL working papers from Central Bank of Luxembourg

Abstract: Shadow intermediaries activities have registered a spectacular increase during the last decades. Recently, their market shares have rapidly been gaining momentum partially due to “regulatory arbitrage". Although their centrality to the credit boom in the early 2000s and to the collapse during the financial crisis of 2007-2009 is widely documented, the number of contributions studying the implications on the real economy and the underlying transmission mechanisms is surprisingly limited. We contribute to filling this gap and devise a new DSGE model whose productive sector captures key characteristics of the European economy by accounting for small and large firms vertically linked in a production chain. The adopted framework includes commercial banks and shadow financial intermediaries directly interconnected in the interbank market with specific and differentiated channels of financing to the real economy. The framework also incorporates moral hazard for commercial banks which, together with regulatory arbitrage, might bring further incentives for banks to securitize part of their assets. An attempt to incorporate macroprudential policy is considered through the implementation of capital requirements and caps to securitization in the traditional banking sector. The results show that the complementarity of such tools devised by a macroprudential authority can be effective in dampening aggregate volatility and safeguarding financial stability.

Keywords: DSGE models; Macroprudential Policy; Shadow Banking; SMEs (search for similar items in EconPapers)
JEL-codes: C32 E32 E44 E5 G21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mac
Date: 2017-10
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.bcl.lu/en/publications/Working-papers/114/BCLWP114.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:bcl:bclwop:bclwp114

Access Statistics for this paper

More papers in BCL working papers from Central Bank of Luxembourg
Bibliographic data for series maintained by ().

 
Page updated 2019-03-16
Handle: RePEc:bcl:bclwop:bclwp114