Shadow Banking Out of the Shadows: Non-Bank Intermediation and the Italian Regulatory Framework

Gola, Carlo; Burroni, Marco; Columba, Francesco; Ilari, Antonio; Nuzzo, Giorgio; Panzarino, Onofrio

doi:10.2139/ssrn.2955016

“…As the chart in figure 1 shows, the value of household housing wealth increased rapidly before the Great Recession, both because of real investment and because of the relative increase in the price of housing. It stabilized around 2009 and has decreased steadily, due to both the collapse in investment 9 See Gola et al (2017). and the fall in the market price of homes.…”

Section: Model Structurementioning

confidence: 99%

“…39 Zezza and Zezza (2019) argue that the structure of an empirical SFC model should start from a careful analysis of the specificity of a country's sectoral balance sheets by drawing on examples for Greece and Italy. 40 See Gola et al (2017).…”

Section: A12 Building the Balance Sheetmentioning

confidence: 99%

A Stock-Flow Consistent Quarterly Model of the Italian Economy

Zezza

¹

,

Zezza

²

2020

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Macroeconomists and political officers need rigorous, albeit realistic, quantitative models to forecast the future paths and dynamics of some variables of interest while being able to evaluate the effects of alternative scenarios. At the heart of all these models lies a standard macroeconomic module that, depending on the degree of sophistication and the research questions to be answered, represents how the economy works. However, the complete absence of a realistic monetary framework, along with the abstraction of banks and more generally of real-financial interactions-not only in dynamic stochastic general equilibrium (DSGE) models but also in central banks' structural econometric models-made it impossible to detect the rising financial fragility that led to the Great Recession.In this paper, we show how to address the missing links between the real and financial sectors within a post-Keynesian framework, presenting a quarterly stock-flow consistent (SFC) structural model of the Italian economy. We set up the accounting structure of the sectoral transactions, describing our "transaction matrix" and "balance sheet matrix," starting from the appropriate sectoral data sources.We then "close" all sectoral financial accounts, describe portfolio choices, and define the buffer stocks for each class of assets and sector in the model. We describe our estimation strategy, present the main stochastic equations, and, finally, discuss the main channels of transmissions in our model.

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“…As the chart in figure 1 shows, the value of household housing wealth increased rapidly before the Great Recession, both because of real investment and because of the relative increase in the price of housing. It stabilized around 2009 and has decreased steadily, due to both the collapse in investment 9 See Gola et al (2017). Other examples of the SFC approach's strengths over a simple model for flows are related to the determination of the composition of the household's portfolio and its relevance for financial markets and economic policy.…”

Section: Model Structurementioning

confidence: 99%

A Stock-Flow Consistent Quarterly Model of the Italian Economy

Zezza¹,

Zezza²

2022

Macroeconomic Modelling, Economic Policy and Methodology

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Macroeconomists and political officers need rigorous, albeit realistic, quantitative models to forecast the future paths and dynamics of some variables of interest while being able to evaluate the effects of alternative scenarios. At the heart of all these models lies a standard macroeconomic module that, depending on the degree of sophistication and the research questions to be answered, represents how the economy works. However, the complete absence of a realistic monetary framework, along with the abstraction of banks and more generally of real-financial interactions-not only in dynamic stochastic general equilibrium (DSGE) models but also in central banks' structural econometric models-made it impossible to detect the rising financial fragility that led to the Great Recession.In this paper, we show how to address the missing links between the real and financial sectors within a post-Keynesian framework, presenting a quarterly stock-flow consistent (SFC) structural model of the Italian economy. We set up the accounting structure of the sectoral transactions, describing our "transaction matrix" and "balance sheet matrix," starting from the appropriate sectoral data sources.We then "close" all sectoral financial accounts, describe portfolio choices, and define the buffer stocks for each class of assets and sector in the model. We describe our estimation strategy, present the main stochastic equations, and, finally, discuss the main channels of transmissions in our model.

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“…As in my paper, they find that the relative size of the shadow banking l a r c i e r sector determines the stability of the financial system. Gola et al (2017) analyse the Italian shadow banking system and find that it is possible to setup a wellbalanced prudential framework, where both bank and non-bank regulation contribute to reducing systemic risks and regulatory arbitrage. To my knowledge, my paper is the first one in which macroprudential policies, in the form of capital requirements and LTV regulation, are introduced in a DSGE framework together with shadow banking.…”

Section: A Policy Model To Evaluate the Effects Of Shadow Banking On The Economymentioning

confidence: 99%

“…However, the risks have been important mainly in Anglo-Saxon countries. In Italy, non-bank financial entities are fully regulated in accordance with the principle of "bank equivalent regulation" and have proved to be safe (see Gola et al, 2017 for a detailed description of the Italian supervisory and regulatory framework of non-bank financial intermediaries).…”

Section: Introductionmentioning

confidence: 99%