Research On The Influence Of The Shadow Banking System On China’s Monetary Policy Transmission Mechanism

Since the U.S. subprime mortgage crisis in2007, the Shadow banking issue has got people’s increasing attention. In China, the size of the shadow banking has been a rapid expansion in recent years, Which has been pursued by economists scholars. However, due to the situation of our country which is in primary stage of socialism currently, underdeveloped financial markets and the modes of separate operationsand separate supervision, the shadow banking system with lack of supervision led to a serious interference on the effect of the implementation of monetary policy and affect the validity of the transmission mechanism. Therefore, by researching on the shadow banking system’s internal credit creation mechanism, exploring internal relationships with monetary policy transmission mechanism, it’s of great significance to select the appropriate monetary policy tools and achieve the economic goals and maintain the stability of financial systems.The China’s shadow banks which is different from the shadow banks in Europe and America copy the commercial banking business in a simple model and have a complex structure, a single mechanism and a simple business. Because of its particularity, this paper analyzes the categories of shadow banking and financial products, including mainly bank off-balance-sheet financial products as well as private loans and entrusted loans from non-financial institutions. Then combining with China’s national conditions and on the basis of the size of the shadow banking credit, this paper explains in details it describes the capabilities of direct and indirect credit creation by examples respectively such as private loans, bank and credit co-financing products and mortgage loan securitization from the perspective of the mechanism.After studying the theory of the shadow banking system, this paper analyze interest rate channel and the credit channel in depth which are China’s two major categories of monetary policy transmission mechanism. Then from a macro perspective,it reduces the conduction’s effectiveness, increases the conduction’s time lag, weakens the controllability of currency and expands the way of conduction.In the last, from a micro perspective, a detailed impact of shadow banks on five different transmission channels is studied.Based on a previous study, by the ways of VAR Model Analysis, Stationary Test, Granger Casualty Test, Impulse Response and Variance Decomposition, it studys the impact on the money supply M2and GDP, as well as Monetary policy transmission mechanism.The result is that the impact on the money supply exceeds the impact on gross domestic product GDP in short term, involving reducing the effect of monetary policy and producing a adverse effect compared to the pre-target, and in the long term, the shadow banking system has played a role for China’s economic development. Therefore, this paper gives in terms of suggestions on improving and promoting the monetary policy transmission mechanism through uncloging the monetary policy transmission channel, optimizing and innovating monetary policy tools and strengthening the supervision of the shadow banking and so on, in order to better serve to the real economy and incorporate the regulation of the micro level into the macro-control level.