Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/228228
Authors: 
d'Avernas, Adrien
Vandeweyer, Quentin
Darracq Pariès, Matthieu
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2350
Abstract: 
This paper investigates the efficiency of various monetary policy instruments to stabilize asset prices in a liquidity crisis. We propose a macro-finance model featuring both traditional and shadow banks subject to funding risk. When banks are well capitalized, they have access to money markets and efficiently mitigate funding shocks. When aggregate bank capital is low, a vicious cycle arises between declining asset prices and funding risks. The central bank can partially counter these dynamics. Increasing the supply of reserves reduces liquidity risk in the traditional banking sector, but fails to reach the shadow banking sector. When the shadow banking sector is large, as in the US in 2008, the central bank can further stabilize asset prices by directly purchasing illiquid securities.
Subjects: 
Asset Pricing
Quantitative Easing
Money Markets
Shadow Banks
JEL: 
E43
E44
E52
G12
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3993-5
Document Type: 
Working Paper

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