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The macroeconomics of shadow banking

The macroeconomics of shadow banking

Botta, Alberto, Caverzasi, Eugenio and Tori, Daniele (2018) The macroeconomics of shadow banking. Macroeconomic dynamics. ISSN 1365-1005 (Print), 1469-8056 (Online) (doi:https://doi.org/10.1017/S136510051800041X)

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Abstract

In this paper, we propose a simple short-run post-Keynesian model in which the key aspects of shadow banking, namely securitization and the production of structured finance instruments, are explicitly formalized. At the best of our knowledge, this is the first attempt to broaden purely real-side post-Keynesian models and their traditional focus on shareholder-value orientation, the financialization of non-financial firms, and the profit-led vs wage-led dichotomy. We rather put emphasis on the role of financial institutions and rentier-friendly environment in determining the predominance of specific growth and distribution regimes. First, we illustrate the macroeconomic rationale of shadow banking practices. We show how, before the 2007-8 crisis, securitization and shadow banking allowed for an increase in profitability for the whole financial sector, while apparently keeping leverage under control. Second, we define a variety of shadow-banking-led regimes in terms of economic activity, productive capital accumulation, and income distribution. We show that both an ‘exhilarationist’ and a ‘stagnationist’ regime may prevail, nevertheless characterized by a probable increase in income inequality between rentiers and wage earners.

Item Type: Article
Uncontrolled Keywords: securitization, shadow banking, leverage, rentiers-led regimes, income distribution
Subjects: H Social Sciences > HG Finance
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of International Business & Economics
Last Modified: 26 Sep 2019 10:54
Selected for GREAT 2016: None
Selected for GREAT 2017: None
Selected for GREAT 2018: GREAT a
Selected for GREAT 2019: GREAT 3
URI: http://gala.gre.ac.uk/id/eprint/19391

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