Shadow banks and macroeconomic instability

Roland Meeks, Benjamin Nelson and Piergiorgio Alessandri

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: We develop a macroeconomic model in which commercial banks can offload risky loans to a ‘shadow’ banking sector, and financial intermediaries trade in securitized assets. We analyze the responses of aggregate activity, credit supply and credit spreads to business cycle and financial shocks. We find that: interactions and spillover effects between financial institutions affect credit dynamics; high leverage in the shadow banking system makes the economy excessively vulnerable to aggregate disturbances; and following a financial shock, stabilization policy aimed solely at the securitization markets is relatively ineffective.

Pages: 61 pages
Date: 2013-12
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
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Citations: View citations in EconPapers (23)

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Related works:
Working Paper: Shadow banks and macroeconomic instability (2014)
Working Paper: Shadow banks and macroeconomic instability (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2013-78

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