This paper studies the interaction of international shadow banking with monetary and macroprudential policy in a two-country currency union DSGE model. We find evidence that cross-country financial integration through the shadow banking system is a source of financial contagion in response to...

We present a model of shadow banking in which financial intermediaries originate and trade loans, assemble these loans into diversified portfolios, and then finance these portfolios externally with riskless debt. In this model: i) outside investor wealth drives the demand for riskless debt and...