A Model of Endogenous Loan Quality and the Collapse of the Shadow Banking System
- (pp. 152-201)
(Complimentary)
Abstract
I develop a macroeconomic model in which banks can affect loan quality by exerting costly screening effort. Informational frictions limit the amount of external funds that banks can raise. In this framework I consider two types of financial intermediation, traditional banking and shadow banking. By pooling different loans, shadow banks achieve a higher endogenous leverage compared to traditional banks, increasing credit availability. However, shadow banks also make the financial sector more fragile, because of the lower quality of the loans they finance and because of their exposure to bank runs. In this setting unconventional monetary policy can reduce macroeconomic instability.Citation
Ferrante, Francesco. 2018. "A Model of Endogenous Loan Quality and the Collapse of the Shadow Banking System." American Economic Journal: Macroeconomics, 10 (4): 152-201. DOI: 10.1257/mac.20160118Additional Materials
JEL Classification
- E32 Business Fluctuations; Cycles
- E44 Financial Markets and the Macroeconomy
- E52 Monetary Policy
- G01 Financial Crises
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G23 Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- L25 Firm Performance: Size, Diversification, and Scope
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