Using a DSGE framework, we discuss the optimal design of monetary policy for an economy where both retail banks and shadow banks serve as financial intermediaries. We get the following results. During crises times, a standard Taylor rule fails to reach sufficient stimulus. Direct asset purchases...

We use granular project-level information for the largest regional economic development program in German history to study whether government subsidies to firms affect the quantity and quality of bank lending. We combine the universe of recipient firms under the Improvement of Regional Economic...

This paper studies how structural transformation exacerbates financial crises. Using newly collected data, I document the persistent effect of credit supply shocks on local economies during the Great Depression. Cities with access to an unusually generous branching network were no different from...

This paper identifies how bank branching benefited local economies during the Great Depression. Using archival data and narrative evidence, I show how Bank of America's branch network in 1930s California created an internal capital market to diversify away local liquidity shortfalls, allowing it...

I develop a model where the sovereign debt capacity depends on the capitalization of domestic banks. Low-capital banks optimally tilt their government bond portfolio toward domestic securities, linking their destiny to that of the sovereign. If the sovereign risk is sufficiently high,...

In the presence of adverse macroeconomic shocks, simultaneous capital losses in multiple banks can prompt them to contract their balance sheets. These bank responses generate externalities that propagate in the form of macro-financial feedback loops. This paper develops a credit response and...

At the forefront of macroeconomic research on the causes of the Great Financial Cri- sis (GFC) was and still is the usage of dynamic stochastic general equilibrium (DSGE) models. To capture the nonlinearities of the GFC, these models were enriched with a variety of financial frictions. This...

This paper studies a banking model of maturity transformation in which regulatory arbitrage induces the coexistence of regulated commercial banks and unregulated shadow banks. We derive three main results: First, the relative size of the shadow banking sector determines the stability of the...

We analyse the poisonous interaction between bank rescues, financial fragility and sovereign debt discounts. In our model balance sheet constrained financial intermediaries finance both capital expenditure of intermediate goods producers and government deficits. The financial intermediaries face...

This paper documents how traditional and shadow banks interacted with one another during the 2007 financial crisis, when both assets and liabilities flew from shadow to traditional banks. To rationalize their behavior, we propose a simple model which demonstrates the symbiotic coexistence and...