6533b855fe1ef96bd12b120e
RESEARCH PRODUCT
How does monetary policy respond to the dynamics of the shadow banking sector?
Vitor CastroVitor CastroFredj JawadiLuca AgnelloRicardo M. SousaRicardo M. Sousasubject
InflationEconomics and Econometricsmedia_common.quotation_subjectFinancial intermediarymonetary policyMonetary economicsnonbank financial intermediarieTaylor ruleAccounting0502 economics and businessEconomicsBalance sheet050207 economicsPrice of stabilityinflationmedia_common050208 financeshadow banking05 social sciencesMonetary policySettore SECS-P/02 Politica Economicaasset growthTaylor ruleNominal interest rateMonetary policy reaction function8. Economic growthFinancedescription
We investigate the response of the central bank to the change in size of non-bank financial intermediaries. Using quarterly data for the U.S. over the period 1946:Q1-2016Q4, we find that when faced with an increase in the asset growth of the securities' brokers and dealers and the shadow banking sector, the monetary authority reacts by raising the short-term nominal interest rate. This response is stronger in the case of sharp variation in the size of the balance sheet of nonbank financial intermediaries. From a policy perspective, our study suggests that an extended version of the original Taylor rule - embedding both price stability and financial stability concerns – provides a good characterisation of the monetary policy reaction function.
| year | journal | country | edition | language |
|---|---|---|---|---|
| 2020-04-01 |