We extend the monetary DSGE model by Gertler and Karadi (2011) with a non-bank financial intermediary to investigate the impact of monetary policy shocks on aggregate loan supply. We distinguish between bank and non-bank intermediaries based on the liquidity of their credit claims. While banks...

Introducing shadow banks into the economy lowers the money supply measured as the sum of cash and deposits, while the amount of payment liquidity does not decrease as long as the liabilities of shadow banks remain fully liquid. At the same time, the total amount of credit available to firms...

A puzzle of China’s shadow banking system is its stark growth since the 2008 Subprime Crisis, which is in sharp contrast to most of countries. We present a model to explain why the shadow banking activities have been allowed to expand with the full awareness of regulators in China. In the...

Recent regulations in the U.S. and Europe incentivize the use of central counterparty clearing houses (CCP) to clear derivatives, arguably to create a less complex and more transparent interbank network that is less prone to financial instabilities. We construct a network model with endogenous...

The origins of money and banking are explained in nearly every introduction money and banking course, but Wray proposes an alternative approach that emerges from a comparative analysis of economic institutions. Orthodox theory suggests that barter replaced self-sufficiency and increased...

The issues in today's crisis – and indeed in the most important crises, historically – can best be understood as a manifestation of asymmetric information in an environment of rapid financial innovation. The present paper reviews the asymmetric information and financial innovation frameworks...

The Mexican banking crisis of 1994/95 necessitated a major government rescue operation - estimated to have cost about 20 per cent of GDP. Since then, financial sector reforms have been implemented and the performance of the Mexican financial system has markedly improved, as shown by indicators...

This paper studies the effects of harmonizing collateral policy in a monetary union. In 2007, the European Central Bank replaced national collateral lists with a single list specifying which assets euro area banks can pledge as collateral. Banks holding newly eligible assets experience a...

The underlying causes of sharp declines in bank lending during recessions in large developed economies, as exemplified by the U.S. in the early 1990s and Japan in the late 1990s, are still being debated due to a lack of any convincing identification strategy of the supply side capital-lending...

The discussion around the role of nonbanks and their impact on financial stability is a healthy development. However, the author believes the current debate is filled with a number of misconceptions and omissions that detract from the goals of enhancing market stability and economic growth...