Monetary Policy and Shadow Banking: Trapped between a Rock and a Hard Place

Martin Hodula

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: In this paper, I collect data on the euro area shadow banking system and demonstrate that tightening of monetary policy conditions in the run-up to the global financial crisis successfully reduced the growth of traditional banking but strengthened the growth of shadow banking due to a general escape from high funding costs. After the crisis, when interest rates were depressed to all-time lows, the empirical link between monetary policy and traditional banking was significantly weakened, while the relationship with shadow banking turned from positive to negative, i.e., the post-crisis monetary easing is found to have caused massive inflows into investment funds as a result of search for yield induced by persistently low interest rates.

Keywords: Interactions; monetary policy; shadow banking; traditional banking (search for similar items in EconPapers)
JEL-codes: E52 G21 G23 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2019/5

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