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International shadow banking and prudential capital controls

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  • Johnson, Christopher P.

Abstract

Shadow banks have recently led the growth in cross-border lending. With this in mind, I develop a two-country real business cycle model with commercial and shadow banking to study the business cycle implications and welfare effects of prudential capital controls. In my model, the presence of shadow banking results in leakages associated with capital controls. As a result, capital outflow restrictions result in a welfare loss in the policy source country, but a welfare improvement in the rival country. Capital inflow restrictions yield the opposite welfare effects for both countries.

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  • Johnson, Christopher P., 2021. "International shadow banking and prudential capital controls," Journal of International Money and Finance, Elsevier, vol. 119(C).
    • Handle: RePEc:eee:jimfin:v:119:y:2021:i:c:s0261560621001212
    DOI: 10.1016/j.jimonfin.2021.102470
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    Cited by:

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    2. Ozgur, Gokcer, 2023. "The cross-border interconnectedness of shadow banking," Economic Modelling, Elsevier, vol. 126(C).
    3. Arora, Dhulika & Kashiramka, Smita, 2023. "What drives the growth of shadow banks? Evidence from emerging markets," Emerging Markets Review, Elsevier, vol. 54(C).
    4. Hodula, Martin & Libich, Jan, 2023. "Has monetary policy fueled the rise in shadow banking?," Economic Modelling, Elsevier, vol. 123(C).
    5. Agénor, Pierre-Richard & Jackson, Timothy P. & Pereira da Silva, Luiz A., 2024. "Cross-border regulatory spillovers and macroprudential policy coordination," Journal of Monetary Economics, Elsevier, vol. 146(C).
    6. Liu, Qi & Wu, Jiejie, 2023. "Strong financial regulation and corporate risk-taking: Evidence from a natural experiment in China," Finance Research Letters, Elsevier, vol. 54(C).
    7. Yang Zhou & Shigeto Kitano, 2023. "Capital Controls or Macroprudential Policies: Which is Better for Land Booms and Busts?," Discussion Paper Series DP2023-12, Research Institute for Economics & Business Administration, Kobe University, revised Apr 2024.

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    More about this item

    Keywords

    Shadow banking; Capital controls;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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