The Influence of China's Shadow Banking System on Monetary Policy
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Studying the shadow banking system (SBS) as well as regulatory measures and reducing its risk is the objective of this study. In this study, how does SBS influence the monetary policy (MP) in China is analyzed from the following aspects. These aspects are MP objectives, monetary policy tools as well as monetary policy transmission mechanism. What’s more, the SVAR model is established and verified. From the results, it can be clearly seen that for the effective play of MP, the role of SBS is an obstacle. For MP instruments, the role of the SBS is to reduce its effectiveness. For the transmission mechanism of MP, the SBS distorts this mechanism. For the effectiveness of China's MP and the real economy, these effects have brought risks and uncertainties. At the same time, the existing various disadvantages of China's MP have also been exposed. As a result, China must accelerate the reform of the MP system. In addition, as for the MP, its objectives, tools as well as transmission mechanism should be vigorously improved, so as to improve the policy’s effectiveness, promote the reform of interest rate liberalization, resist as well as control the risks brought by the SBS.
Shadow banking system; monetary policy; credit creation; monetary multiplier