We study the effects of shadow banking panics in a macroeconomic model with a rich financial system, including deposit-financed retail banks and wholesale-financed shadow banks. The model can quantitatively match the dynamics of key variables around the US financial crisis. Wholesale funding...

We study the effects of shadow banking panics in a macroeconomic model with a rich financial system, including deposit-financed retail banks and wholesale-financed shadow banks. Shadow banking panics occur when retail banks choose not to roll over their lending to shadow banks. Occasionally...

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. We develop a model of a production economy with a banking sector where financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases...

We show that systemic risk in the banking sector breeds macroeconomic uncertainty. We develop a model of a production economy with a banking sector where financial constraints of banks can lead to disastrous banking panics. We find that a higher probability of a banking panic increases...

We establish a set of US stylized facts on prices, quantities and balance sheets, assess the consistency of the current generation of financial DSGE models to these, and provide guidance on the challenges ahead. We mainly find four aspects which future financial friction models should take into...