Macroprudential regulation and leakage to the shadow banking sector

We study the effects of macroprudential commercial bank regulation on shadow banking sector via an estimated New Keynesian DSGE model that differentiates between monopolistically competitive banks and rely funding in a perfectly market for investments. find tighter capital requirements increase lending, which may have adverse financial stability effects. Coordinating tightening with monetary easing can limit this leakage mechanism, while overall maintaining reduction aggregate lending. In counterfactual analysis we compare how policy implemented before 2008 crisis would affected business lending cycles.