Research On The Impact Of Shadow Banking On Monetary Policy In China

In recent years,shadow banking,which is the business module of Chinese financial innovation,is able to satisfy the financing requirements that cannot be fulfilled by traditional commercial banks.In the meantime,shadow banking,as the complement of formal financial institution,plays a significant role in financial sector.Therefore,it is cannot be ignored the fact that shadow banking has been strongly influencing macro economics.Monetary policy is one of the most important policy means of macroeconomic regulation and control and its effectiveness has been the focal point for scholar studies,which is also the focal issue in financial sector.This dissertation focuses on the influence on monetary policy exerted by Chinese shadow banking,which involved the study of Chinese shadow banking's influence on monetary policy tools,intermediary targets of monetary policy and the final effect of monetary policy.This study has a significant meaning for shadow banking's healthy development and effective implementation of monetary policy.The first part,which includes chapter1,is an introduction.It introduces the background of the thesis,the meaning of the study,the research results by the domestic and foreign scholars,the structure of the thesis,the main research methods,the innovation points and deficiencies.The second part,which includes chapter2,expounds the general situation of the shadow banking in China and the theory of financial innovation,theory of financial intermediation,theory of monetary policy,etc..This chapter lays a foundation for the next research.The third part is the main part of this dissertation,including chapter 3,chapter 4,chapter 5 and chapter 6.The 3rd chapter is the theoretical analysis of the influence of Chinese shadow banking on monetary policy.First,it analyzes the influence mechanism of the Chinese shadow banking on the monetary policy in 3 aspects: the analysis of the mechanism of the impact on money policy instruments,the analysis of the mechanism of the impact on the intermediary target of the monetary policy,the analysis of the mechanism of the impact on monetary policy effect.The mechanism analysis of monetary policy effect is divided into the mechanism of credit transmission channel andthe mechanism of interest rate transmission channel.The 4th,5th and 6th chapters carry on the empirical analysis.The chapter 4 is the analysis of the influence of Chinese shadow banking on the monetary policy tools.First,the thesis reviews the practice of monetary policy tools since 1998,then use the SVAR model to analyze the impact of China shadow banking on monetary policy tools.The chapter 5 is the analysis of the influence of Chinese shadow banking on the intermediary target of monetary policy.Firstly,the thesis expounds the operation of money supply and analyzes the application and controllability of the money supply.Secondly,it analyzes the interest rate environment in China,expounding the marketization process of interest rate and analyzing the controllability of interest rate.Finally,it uses VAR model to analyze the influence of Chinese shadow banking on money supply and interest rate respectively.Chapter 6 is the analysis of the influence of Chinese shadow banking on the monetary policy effect.Firstly,use empirical testing on the influencing factors of economic growth and price level by factor analysis.This method provides the basis of selecting control variables for the next empirical analysis;Secondly,using the MSVAR model to analyze how shadow banking to influence monetary policy effect,in two aspects to analyze the effect,shadow banking effects on the economic growth and the effects on the price level.Through two regimes that are expansionary monetary policy and contractionary monetary policy,meanwhile there is also an argument for the asymmetry of the monetary policy effects.The forth part,which includes chapter7,expounds the main conclusions and policy suggestions.In terms of the analysis of the impact that the shadow banking has on tools of monetary policy,this thesis concludes that shadow banking expansion could depress the use of contractionary monetary policy tools at the beginning.Because the expansion of shadow banking will raise the cost of capital in the short term,the interest rate will rise.The rise in interest rate has tightened monetary policy,if the central bank maintains its original state,the rediscount rate may fall to offset the tightening effects of higher interest rate.Subsequently,shadow banking expansion will promote the rediscount rate,reduce the net capital spending in open market operations.As the shadow banking credit creation causing the increase of money supply,central bank had to reduce the net capitalspending and improve the rediscount rate to depress monetary supply,namely the increase of the scale of the shadow banking will intensify the use of contractionary monetary policy tools.Judging from the degree of impact,the open market operation is more affected by shadow banking in the short term and the rediscount policy is more affected by shadow banking in the long term.The dynamic persistence of open market operation is keeping long time,but the response of rediscount policy to shadow banking is delayed.The dynamic persistence of the rediscount policy is keeping short time,that is to say,the effect of shadow banking on rediscount policy appeared completely in a short time.There is little time lag for the effect on rediscount policy,and the effect immediately appears after the shock.In terms of the analysis of the impact that the shadow banking has on intermediary target of the monetary policy,this thesis concludes that changes in the growth rate of the shadow banking initially has a positive effect on growth rate of money supply,that is to say,improving the growth rate of the shadow banking will promote the growth rate of money supply,the rapid growth of shadow banking has increased the money supply.After a short-term increase in the growth rate of money supply,there is more liquidity in financial markets and it is easier for companies to obtain funds.Shadow banking has higher capital costs compared with commercial banks,this has reduced its credit and the growth rate of money supply.In other words,the growth rate of shadow banking will restrain the increase in the growth rate of money supply at this time.The change in the growth rate of shadow banking initially has a positive effect on the change of growth rate of interest rate.That is to say,improving the growth rate of shadow banking will promote the growth rate of interest rate.It shows that the rapid growth of shadow banking has driven up the cost of financing and raised the interest rate.As interest rates rising,the capital of financial markets decreasing,that makes many enterprises financing needs are not being met,they can only turn to shadow banking for financing.Then shadow banking credit enhanced and shadow banking credit creation effect also gradually revealed at this time,the growth rate of interest rate is slowing down,the change of the growth rate of shadow banking is negative to the change of growth rate of interest rate.The increase of shadow banking growth rate will restrain the rise of growth rate of interest rate.A comparative analysis of the two impulse response functions shows that the effects on theinterest rate is larger than on the money supply.In terms of the analysis of the impact that the shadow banking has on effects of monetary policy,this thesis concludes that the conclusion of considering credit transmission channels and the interest rate transmission channels are consistent.In contractionary monetary policy,the rapid growing of the shadow banking will promote economic growth and CPI,weaken the effects of contractionary monetary policy.In expansionary monetary policy,the decline in growth rate of shadow banking will promote the GDP and CPI,strengthen the effects of expansionary monetary policy.Therefore,from the perspective of economic growth and the price,shadow banking will weaken the effects of contractionary monetary policy and strengthen the effects of expansionary monetary policy.Although shadow banking has the same direction of effects on the final targets of monetary policy,the degree of effects is different.To sum up,there is asymmetry that shadow banking impacts on monetary policy.From the point of view of the economic growth,effects on the contractionary monetary policy are stronger than effects on the expansionary monetary policy.From the point of view of the price level,effects on the expansionary monetary policy are stronger than effects on the contractionary monetary policy.