Do contractionary monetary policy shocks expand shadow banking?

Benjamin Nelson, Gabor Pinter and Konstantinos Theodoridis

No 521, Bank of England working papers from Bank of England

Abstract: Using vector autoregressive models with either constant or time-varying parameters and stochastic volatility for the United States, we find that a contractionary monetary policy shock has a persistent negative impact on the asset growth of commercial banks, but increases the asset growth of shadow banks and securitisation activity. To explain this ‘waterbed’ effect, we propose a standard New Keynesian model featuring both commercial and shadow banking, and we show that the model comes close to explaining the empirical results. Our findings cast doubt on the idea that monetary policy can usefully ‘get in all the cracks’ of the financial sector in a uniform way.

Keywords: Monetary policy; financial intermediaries; shadow banking; VAR; DSGE (search for similar items in EconPapers)
JEL-codes: E43 E52 G21 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2015-01-16
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

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Journal Article: Do contractionary monetary policy shocks expand shadow banking? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0521

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