Working Paper: The Macroeconomic Effects of Shadow Banking Panics

Working Paper - June 2020 - no. 158

Authors Poeschl, Johannes
Subject Financial institutions; Financial stability; Interconnectedness; Monetary policy
Type Working paper
Year 2020
Published 23 June 2020
We study the effects of shadow banking panics in a macroeconomic model with a rich financial system, including deposit-financed retail banks and wholesale-financed shadow banks. The model can quantitatively match the dynamics of key variables around the US financial crisis. Wholesale funding market interventions akin to those implemented by the Federal Reserve in 2008 reduced the fall in output by about half a percentage point. Generally, central bank interventions reduce output volatility and the likelihood of banking panics.