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 non-bank 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.

Agnello L., Castro V., Jawadi F., Sousa R.M. (2020). How does monetary policy respond to the dynamics of the shadow banking sector?. INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, 25(2), 228-247 [10.1002/ijfe.1748].

How does monetary policy respond to the dynamics of the shadow banking sector?

Agnello L.;
2020-01-01

Abstract

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 non-bank 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.
2020
Settore SECS-P/02 Politica Economica
Agnello L., Castro V., Jawadi F., Sousa R.M. (2020). How does monetary policy respond to the dynamics of the shadow banking sector?. INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, 25(2), 228-247 [10.1002/ijfe.1748].
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/10447/388048
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