Empirical Evidence On Macroeconomic Effects Of Shadow Banking System In China Based On A DSGE Model

In recent years,China's shadow banking has experienced explosive growth,which has become an integral part of China's financial system and plays an increasingly important role in social financing.In this regard,there are views that the operation of shadow banking is not standardized and poses a long-term threat to China's financial security,and it poses great risks.However,there are also views that shadow banking is a result of the development of China's financial institutions as well as the diversification of financing,which has broadened the financing channels,playing an active role in servicing the economy.Therefore,it is necessary to carry out an in-depth study of the macroeconomic effects of China's shadow banking scientifically and objectively,further clarifying its function and role,neither denying its positive role nor neglecting its potential risks,and serving the reform of the financial system,which is also the subject of this article.The basic idea of this paper is to study the impact of shadow banking on the macro-economy through the construction of a dynamic stochastic general equilibrium(DSGE for short)model.However,as to what shadow banking really is,academics,industry,and regulators have failed to give a clear definition.In this regard,this paper concludes the borders of shadow banking from three levels by summarizing the common characteristics of the definition of shadow banking in the literatures and sorting out the development causes of shadow banking: Shadow banking of the first level(broadly defined)are institutions and businesses that are engaged in capital lending,have not paid deposits to the central bank,are not protected by deposit insurance,and the central bank does not assume the “lender of last resort”.The second-level is framed by the first level and divided into “subatantial” shadow banks(developing “loans”)and “transactional” shadow banks(specializing in asset securitization)based on shadow bank capital flows.The third level is framed by "substantial" shadow banking and is divided into "shadow of the bank"(bridge business)and "traditional shadow banking"(securities,trusts,etc.)based on the relationship with commercial banks.On this basis,the paper analyzes and discusses the credit creation mechanisms of different types of shadow banks.After clarifying the types and microcosmic operating mechanisms of China's shadow banks,we shift the research perspective from micro to macro and build up a dynamic stochastic general equilibrium model(DSGE)as an analysis tool.This model includes shadow banks,commercial banks,high-risk entrepreneurs,low-risk entreprenures,final-good firms,intermediate-good firms,capital producers,government and monetary policy instituition,in which low-risk entreprenures borrow money from commercial banks while high-risk entrepreneurs can only borrow money from shadow banks.After using China's empirical data and literature data to calibrate the model parameters,relevant external impacts were substituted into the model to simulate the macroeconomic response to the impact,and the macroeconomic effects of shadow banking were obtained.Through the above numerical simulations,the following conclusions are obtained: First,China's shadow banking has weakened the implementation of monetary policy to a certain extent,so that the role of monetary policy can not be fully exerted;Second,the default risk of shadow banking will has created potential threats to the macroeconomic stability,that has decreased the investment and output.Third,under the current conditions,the expansion of shadow banking system is good for China's economic growth.The main innovations and contributions of this paper are reflected in the following aspects: First,based on the common characteristics of different types of shadow banks,this paper tries to define the shadow banks by different levels.This setting makes it possible for current shadow banks of different countries and types to find corresponding positions,making the definition of shadow banking unified and clear.Second,this paper incorporates shadow banking into the framework of the DSGE model.It has a solid microeconomic theoretical basis and can more clearly demonstrate the economic operating mechanism,which make the results more convincing.Third,for the first time,this paper separately models the different microscopic operating mechanisms of the two different types of China's shadow banking — the “shadow of the bank” and the “traditional shadow banking”,thus making the model more relevant to the reality of our country.Fourthly,this paper discusses in depth the reasons for the emergence and development of China's shadow banking and believes that shadow banking has revised financial restraints and improved financial efficiency,which has met the financing needs of the real economy to a certain degree,and therefore it also has rich policy implications.That is,speeding up the reform of the financial system and making the shadow banking "sunny."...