Research On Shadow Banking And Monetary Policy Transmission Based On A DSGE Model

The years leading to the 2007-2009 financial crisis in the United States have been characterized by the development of a set of non-bank financial institutions that formed the shadow banking system.In China,the size of the shadow banking has been a rapid expansion over the last ten years.This leads to the dual structure of shadow banking system and traditional banking system.The dual financial intermediation produces a more significant impact on the financial market and the macro-economy than before.It affects the implementation effect of monetary policy,change the money supply channel and amplify the scale of money supply,as well as interfers with the window guidance of central bank's monetary policy.Under the transmission channel of monetary policy,in order to make the total social financing and structure,which includes shadow banking at a reasonable level and effectively guide its directionand make it consistent with the objectives of monetary policy,we need to improve the operation of monetary policy objective system and optimize various monetary policy tools under the transmission channel of monetary policy.This will become an urgent problem to be solved.This paper therefore aims to contribute to fill the gap in this field.From the bank balance sheet and enterprise risk appetite perspective,we study how such financial intermediaries —shadow bank and commercial bank,affect the effectiveness of monetary policy transmission.This paper constructs a medium-scale structural model of the Chinese economy.After the usual calibration and estimation,this paper numerically evaluates the DSGE model,and uses the model to forecast the macroeconomic variables as well as banks variables.Finally,based on the DSGE model,the author explores the relationship between asset price and monetary policy,analyzes the impulse response from monetary policy and expected exogenous shocks.Firstly,this study explores dynamic process and mechanism of the impact of shadow banking and monetary transmission.After defining the connotation of shadow banking and the channel of monetary transmission,based on financial intermediary theory,financial accelerator theory,it incorporates a shadow banking sector in a dynamic stochastic general equilibrium(DSGE)model.This study discusses the shadow banking andthree channels of monetary policy transmission,namely monetary supply channel,credit channel and interest rate channel.Secondly,this study explores the shadow banking and monetary supply transmission.It incorporates shadow banking system into the economic operation system.In the model,the economy is populated by six types of agents: Households,financial intermediaries,goods producers,capital producres,retail producers and monetary authority.The central bank conducts money supply rules.In order to highlight the shadow banking sector,the model is divided into the traditional banking economy and baseline model.The findings indicate that in baseline model,when increasing money supply,both the net worth of commercial banks and the capital financed by commercial banks decline,whereas the net worth of shadow banks and the capital financed by shadow banks increase.By comparing the baseline model with the traditional commercial banking model,the results suggest that in baseline model,it shows a more significant negative volatility amomg financing capital,net worth and the screening level of commercial banks.While in the traditional commercial banking model,the three main variables such as financing capital,net worth and the screening level have a slower decline to the response to a positive monetary supply shock.Thirdly,this study explores the shadow banking and credit transmission mechanism.It incorporates shadow banks and commercial banks into the economic operation system.In the model,the economy is populated by five types of agents: Households,financial intermediaries,goods producers,retail producers and monetary authority.The central bank uses Taylor rules.In order to highlight the shadow banking sector,the model is divided into the traditional banking economy and baseline model.The results suggest that in baseline model,after a positive interest rate shock,the net worth,bank loans and financing capital of commercial banking system increase,whereas the net worth,bank loans and financing capital of shadow banking system decrease.By comparing the baseline model with the traditional commercial banking model,the results suggest that in baseline model,it shows a more significant positivevolatility amomg financing capital,net worth and the screening level of commercial banks.While in the traditional commercial banking model,the three main variables such as financing capital,net worth and the screening level have a slower increase to the response to a positive monetary supply shock.Finally,this study explores the shadow banking and interest rate transmission.In the model,the economy is populated by six types of agents: Households,financial intermediaries,high-risk firms,low-risk firms,final producers,intermediate producres,capital producers and monetary authority.This study assumes that the high-risk firms obtain financing via shadow banks loans,while the low-risk firms obtain financing via commercial banks.The findings indicate during the period of raising interest rate,the high-risk entrepreneur's net worth decreases whereas the capital stock and leverage level increases.In the short term,the low-risk entrepreneur's net worth decreases and then gradually rises to the steady level.The capital stock and leverage level decreases.In response to a positive interest rate shock,the commercial bank lending decreases and the shadow bank lending ascend.Shadow banks increase lending after monetary policy tightening.In this paper,the dynamic process and mechanism theory of the impact of shadow banking system on monetary policy transmission deepens the theoretical research in this area,empirical research adds new empirical evidences for international and domestic shadow banking researchs,and helps monetary authority to make new and effective monetary policy guidelines and polices.Meanwhile,this study will provide theoretical basis and new empirical support for the supervision and innovation of shadow banking in China.