Shadow banking, monetary policy and systemic risk

ABSTRACT

This article aims to analyse the dissimilation effect of shadow banking on monetary policy and to judge the cyclical characteristics of shadow banking. Further, we analyse the dynamic response of shadow banking to financial risk shocks and regulatory shocks, and examine the influence of shadow banking on the transmission path of systemic risks, so as to provide theoretical bases for financial supply-side structural reforms in the context of high-quality development. To this end, this article constructs the multi-sector DSGE model that includes the shadow banking sector and the commercial banking sector that subjects to multiple credit regulatory constraints. And then the five-variable VAR model is used to conduct empirical tests. Empirical research has found that Chinese-style shadow banking exhibits countercyclical characteristics, and the existence of shadow banking reduces the transmission effectiveness of credit channel. Numerical simulation analysis finds that positive interest rate shocks would trigger the expansion of shadow banks and increase leverage, while reducing the credit leverage of commercial banks. Technological impacts such as financial technology have reduced loan premiums and have played a role in multi-channel evacuation of risk accumulation from the perspective of inclusive finance.

KEYWORDS:

• Shadow banking
• monetary policy
• systemic risk
• DSGE

Acknowledgements

We would like to acknowledge the financial support from the National Natural Science Foundation of China (Nos. 71901130, 71532009, 71790594), China Postdoctoral Science Foundation (2018M641653).

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71532009,71790594,71901130].