Research On The Effect Of Shadow Bank On Monetary Policy

The American Subprime-mortgage Crisis has push the Shadow-Banking System from dark to the public. After reading lots of literature, I have found that the present research mainly introduce the system from a theoretical view with the background of European and American, empirical analysis is even rare. Based on annual data from year1992to2013, This paper attempts to analyze from the difference between Chinese and American Shadow-Banking System, estimates roughly size of the system by Macro-Funds-Flow method. And then choose appropriate variables to build VAR model along with methods such as the Granger causality test, cointegration test, impulse response analysis and variance decomposition so as to quantitatively study the relationships between the Shadow Bank and Chinese economic development. This paper has found that:(1) the shadow banking system in China is currently roughly having the size of15.37trillion, and the not-observed credit accounts for the most part while the commercial banks OBSA relatively small.(2) According to Granger causality test, Shadow bank has effects on economic development, inflation and money supply, but the reverse is not.(3) There is a long term cointegration relationship among shadow bank, economic growth, inflation and money supply.(4) Impulse response analysis and variance decomposition shows that the shadow banks’money creation effect is much notable than inflation effect as well as economic growth effect.(5) Shadow bank cause changes in real money supply and weakens money policy’s controllability.The Impact on Chinese economic development of shadow bank mainly elaborated from two aspects:First, by affecting the transmission mechanism of monetary policy, it could influence the economy; Second, the contradiction between shadow bank’s high-risk and low regulatory coverage have impact on the economy development. Shadow banking system supply liquidity by money creation function without regulation, and thus caused a challenge on the effectiveness of monetary policy. Meanwhile, the shadow banks’business may sink in large-scale defaults when the macroeconomic changes, thus forming the impact on the stability of the entire financial system. Based on this, this paper proposes the following policy recommendations:(1) Government and regulatory authorities should encourage private financial institutions’development, make the dark system legal and transparent;(2) Put the system in the scope of regulation;(3) Accelerating the marketization of interest rate;(4) Strengthening the credit support from form financial intitutions to SMEs.