The role of shadow banking in the monetary transmission mechanism and the business cycle

Arbeitspapier

This paper investigates the heterogeneous impact of monetary policy shocks on financial intermediaries. I distinguish between banks and shadow banks based on their funding constraints. Because credit creation by banks responds to economy-wide productivity endogenously, bank reaction to shocks corresponds to the balance sheet channel. Shadow banks are constrained by their available funding and their behavior is better explained by the lending channel. In line with empirical observations, shadow bank lending moves in the opposite direction to bank lending following monetary policy shocks, which mitigates aggregate credit responses. The propagation of real and financial shocks is likewise altered when shadow banks are identified as a distinct sector among financial intermediaries. Following estimation of the model using Bayesian methods, a historical shock decomposition highlights the roles of banks and shadow banks in the run-up to the 2007 - 08 financial crisis.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2015-040

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Money Supply; Credit; Money Multipliers ; Financial Institutions and Services: General
• Subject: Shadow Banking ; Monetary Policy Transmission ; Credit Channel ; Bayesian Methods ; Search Frictions

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mazelisy, Falk
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/122010
• Last update: 10.03.2025, 11:42 AM CET