Does Shadow Banking Exacerbate Economic Fluctuations

In recent years,China has abandoned the extensive mode of economic growth,so that the economic cycle has been adjusted and the real economy has fluctuated.At the same time,under the endogenous driving force of pursuing regulatory arbitrage,shadow banking and the formal banking system are closely associated.Althrough shadow banking fills the formal financial void,it also accumulates the risk of financial structure imbalance and becomes the hidden danger of financial system and the entire economic system.Therefore,the problem whether shadow banking is an unstable factor of the economy and the relationship between shadow banking and the unbalanced economic structure become a focus of the academia and industry.This paper aims to explore the cause of China's economic fluctuation from the perspective of shadow banking,which consists of five parts except for the introduction.Chapter One elaborates the theoretical basis of this paper.The theory linking finance development and economic volatility can be divided into two major systems:the monetary school and the credit school.After the US subprime mortgage crisis in2007,the monetary concept exposed many limitations,and then the economic cycle theories transit to the credit concept.This paper is based on the analysis framework of credit theory,of which the financial accelerator is one trait theory.Chapter Two analyzes the developing situation of Chinese shadow banking.First,the connotation of Chinese shadow banking is defined.And then the stock scales of Chinese shadow banking from 2010 to 2016 are estimated based on its components.At the end of 2015,the scale of Chinese shadow banking has reached 59.7 trillion yuan,accounting for 87.2% of GDP,and 64.5% of RMB loans.It shows that the scale of Chinese shadow banking has already been very large,and its alternative and complementary role to formal credit is growing.Chapter Three makes an empirical analysis of the impact of shadow banking on economic fluctuation.Through the threshold vector autoregressive(TVAR)model,it is found that shadow banking weakens the economic fluctuation caused by monetary shock and credit shock,and aggravates the economic fluctuation caused by interest rate shock and actual shock.The first two shocks are montary policy variables.The result that shadow banking weakens monetary policy's effect of regulating macroeconomy illustrates that shadow banking actually increases the macroeconomic fluctuations.From the shock of marketing interest rates and the economic system itself,the shadow banking also exacerbates the economic fluctuations.As to the result,this chapter puts forward an explanation based on the financial accelerator: the enterprises which shadow banking capital inflows to are unstable in different economic environment.Chapter Four proves the explanation in the previous chapter.It analyses the capital flow of shadow banking and the relationships between the capital flow and economic fluctuation.It determines the capital flow of shadow banking from the ease degree of financial constraints to different types of enterprises.The degree of external financing constraints is reflected by the investment-cash flow sensitivity.Using the Euler equation model and dynamic panel GMM method,this chapter draws the conclusion that a large part of shadow banking capital inflows to the local government enterprises and overcapacity industry.Shadow Banking makes their debt chains lengthened,which is at the expense of greater economic volatility in the future.The last part puts forward some policy suggestions to the guidance and supervision of shadow banking.The suggestions include expliciting the shadow banking through functional supervision,dual regulation of monetary policy and macro and prudential supervision,and so on.