I build a dynamic model of the shadow banking system that intermediates funds through the interbank repo market to understand its efficiency and stability. The model emphasizes a key friction: the maturity mismatch between the short-term repo and the long-term investment that banks need to...

Rehypothecation refers to the practice of reusing (selling or pledging as collateral) an asset that has already been pledged as collateral for a cash loan. In high inflation economies, rehypothecation improves economic welfare, but there is generally too much of it. We find that regulatory...