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Author(s): Fabio Verona
Manuel Mota Freitas Martins
Inês Drumond
Title: Monetary policy shocks in a DSGE model with a shadow banking system
Issue Date: 2011
Abstract: This paper is motivated by the recent nancial crisis and addresses whether a too low for too long interest rate policy may generate a boom-bust cycle. We suggest a model in which a microfounded shadow banking sector is included in an otherwise state-of-the-art DSGE model.When faced with perverse incentives, financial intermediaries within the shadow banking sector can divert a fraction of stockholders' profits for their own benets and extend credit at a discounted rate. The model predicts that long periods of accommodative monetary policy do create thepreconditions for, but do not cause per se, a boom-bust cycle. Rather, it is the combination ofa persistent monetary ease with microeconomic distortions in the financial system that causes a boom-bust.
Subject: Economia, Economia e gestão
Economics, Economics and Business
Scientific areas: Ciências sociais::Economia e gestão
Social sciences::Economics and Business
Document Type: Trabalho Académico
Rights: openAccess
Appears in Collections:FEP - Trabalho Académico

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