Work in progress

"Capturing Macroprudential Policy Effectiveness: A DSGE Approach with Shadow Intermediaries" (with Abdelaziz Rouabah). Submitted.

Last available version: Banco de España, Revista de estabilidad financiera. N°37 (Otoño 2019), p. 151–192, 2019

First draft: Working Paper No. 2017/114, Banque centrale du Luxembourg .

Abstract. We develop a New Keynesian DSGE model with heterogeneous agents to investigate how the shadow financial system affects macroeconomic activity and financial stability. In the adopted framework, regulated commercial banks finance small firms through traditional business loans and exert costly effort to screen the projects they finance. Shadow financial intermediaries finance large firms, provide short-term lending to commercial banks, and are engaged in the secondary market for loans. In this market, commercial banks originate asset-backed securities under moral hazard to exploit regulatory arbitrage. Shadow intermediaries purchase these loans from commercial banks under adverse selection. In general equilibrium, this set of externalities is not internalized by the financial system. We show that a macroprudential authority may successfully mitigate the externalities by activating caps to both the leverage ratio and the securitization ratio in the traditional banking sector. Such policy actions are effective in dampening aggregate volatility and safeguarding financial stability.

Keywords: shadow banking, regulatory arbitrage, macroprudential policy


"Bank Assets, Liquidity and Credit Cycles", (with Ivan Petrella and Emiliano Santoro), Journal of Economic Dynamics and Control, August 2019, 105:265-282. [Link to WP version]

Work in progress

Households Heterogeneity over the Business Cycle

Investment Funds and Liquidity

Older works

Financial Deepening and Macroeconomic Volatility [available upon request]

Firm Turnover and Unemployment Fluctuations [available upon request]