Financial Cycle, Shadow Banking And Forward-looking Monetary Policy

During the current global financial crisis,the rapid shadow banking system expansion is considered to be one of the major factors leading to the instability in the financial system.The rapid expansion of shadow banking system is reflected in the interest rate liberalization.But the potential financial risk in shadow banking system has become instability risks of China's economic growth.Shadow banking system is a form of financial innovation in the financial repression and tight monetary policy.Shadow banking system can improve the efficiency of social capital,helps promoting interest rate liberalization.Shadow banking system is not adequately supervised and information disclosure.So shadow banking system can be a risk for the financial system.These make shadow banking system as an important variable of the relationship between financial market and monetary policy.Shadow banking system is a product of the financing demands and avoiding financial regulation.The direct impact of the financial cycle to the shadow banking system can influence monetary policy.So when PBOC making monetary policy,should forward looking consider shadow banking system.Improving the effectiveness of the regulation of the financial and economic cycle,enhancing soundness of financial market,helps sustainable development of economic development.China's authority had been reforming financial system when the financial crisis breaks.PBOC canceled the commercial bank deposit rate upper limit,showing the administrative intervention of interests have been completely eliminated.This paper analyzes the impact of shadow banking system to monetary policy.First of all,we define the important concepts,then clarifies the ideas and methods,and puts forward the innovation and deficiency.We analyze the financial cycle theory,research the development background and connotation of the theory,then sorting and summarizing according to the theory background of the times.We analyze the related theory of shadow banking system.Carding and researching the concept of shadow banking system,the formation mechanism,measuring scale,characteristics and risks,the impact of macroeconomic,financial regulation and other aspects.We analyze the forward-looking monetary policy and theory.We analyze the composition and characteristics of Chinese shadow banking system from the phenomenon level,and then studied the formation of the shadow banking system and credit creation mechanism.Generated based on real financing needs,Chinese shadow banking system is a kind of spontaneous innovation activity under financial repression.Next,the paper analyzes the correlation of the financial cycle and shadow banking system.On the one hand,selecting the principal component analysis method for measuring the China Financial Conditions Index,on the other hand,using different methods measuring China's shadow banking system stock data and traffic data.After analyzed the relationship between the shadow banking system and financial cycles on this basis,the empirical research shows that the shadow banking system and financial cycle has a close positive correlation.In addition,the empirical analysis of the relationship between the shadow banking system and the credit gap proves the derivation of the formation mechanism of the shadow banking system.Shadow banking system can supplement the credit gap to a certain extent,to satisfy the social financing needs.And then,we analyze the operation transmission mechanism of monetary policy,combs respectively from the credit transmission channels and the monetary transmission channels.This chapter analyzed the impact of shadow banking system on monetary policy transmission mechanism,finding that shadow banking system can actually interfere with monetary policy,but the interference is asymmetry——Shadow banking system has a stronger interference on tight monetary policy than on loose monetary policy.This asymmetry is decided by the real financing needs of the shadow banking system.Then,this chapter analyzed the shadow banking system risk transmission mechanism,the risk sources and characteristics of China's shadow banking system.Final proposed that inflation and run are both conduction mode of the shadow banking system during the risk accumulation stage and the risk outbreak stage.Finally,the chapter studied the impact of shadow banking system system to the monetary policy.By analyzing the influence of shadow banking system on quantitative monetary policy,we found that the shock of shadow banking system can cause the volatility influence to the shock of M2 and credit scale,eventually stabilized.Then it analyzed the impact of the shadow banking system on price monetary policy.Carding theoretically transfer relationship between interest rates.The empirical results show that the bond market interest rates can affect the shadow banking system interest rates,furthermore,in the fifth period the impact is greatest.This suggests that price monetary policy can affect the shadow banking system by influencing the level of interest rates.In addition,the research on the introduction of shadow banking variables of Taylor rule.We discuss the origin and meaning of forward-looking monetary policy and illustrate the necessity for the implementation of forward-looking monetary policy.We expand the Taylor rule,the shadow banking variables are introduced to the forwardlooking Taylor rule.The results show interest rate smooth-looking Taylor rule can explain China's monetary policy.But China's monetary policy did not contain shadow banking as a variable.Finally,we suggest that China should make interest rate liberalization more effective.Quantitative monetary policy can not control shadow banking effectively,but price based monetary policy can make sense.Chinese monetary policymakers should consider the impact of the shadow banking variables.PBOC can make forward-looking monetary policy to control shadow banking.China should improve financial supervision.