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Retirement in the Shadow (Banking)

Guillermo Ordonez () and Facundo Piguillem ()

No 1714, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: The U.S. economy has recently experienced a large increase in life expectancy and in shadow banking activities. We argue these two phenomena are intimately related. agents resort on financial intermediaries to buy insurance against an uncertain life span after retirement. When they expect to live longer they are more prone to rely on financial intermediaries that are riskier but offer better terms for insurance – shadow banks. We calibrate the model to replicate the level of financial intermediation in 1980, introduce the observed change in life expectancy and show that the demographic transition is critical to account for the boom both of shadow banking and credit that preceded the recent U.S. financial crisis. We construct a counterfactual without shadow banks and show that they may have contributed 0.5 GDP, which is larger than the cost of the crisis of around 0.2 GDP.

Pages: 42 pages
Date: 2017, Revised 2017-12
New Economics Papers: this item is included in nep-age, nep-ban, nep-dge and nep-rmg
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Related works:
Working Paper: Retirement in the Shadow (Banking) (2019) Downloads
Working Paper: Retirement in the Shadow (Banking) (2018) Downloads
Working Paper: Retirement in the Shadow (Banking) (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1714

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