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The Macroeconomics of Shadow Banking

56 Pages Posted: 16 Aug 2013 Last revised: 5 Jan 2017

Alan Moreira

Yale University

Alexi Savov

New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 29, 2016


We build a macro-finance model of shadow banking: the transformation of risky assets into securities that are money-like in quiet times but become illiquid when uncertainty spikes. Shadow banking economizes on scarce collateral, expanding liquidity provision in booms, boosting asset prices and growth, but also creating fragility. A rise in uncertainty raises shadow-banking spreads, forcing the financial sector to switch to collateral-intensive funding. Shadow banking collapses, liquidity provision shrinks, liquidity premia and discount rates rise, asset prices, investment, and growth fall. The model generates slow recoveries, collateral runs, and flight-to-quality. It sheds light on LSAPs, Operation Twist, and other interventions.

Keywords: Financial intermediation, liquidity transformation, shadow banking, unconventional monetary policy

JEL Classification: E44, E52, G21

Suggested Citation

Moreira, Alan and Savov, Alexi, The Macroeconomics of Shadow Banking (April 29, 2016). Journal of Finance, Forthcoming. Available at SSRN: or

Alan Moreira

Yale University ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
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2034320389 (Phone)


Alexi Savov (Contact Author)

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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