HOUSING MARKET VOLATILITY, SHADOW BANKS AND MACROPRUDENTIAL REGULATION: A DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODEL ANALYSIS

Jinsong Wang () and Luoqiu Tang
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Jinsong Wang: School of Economics, Hangzhou Normal University, No. 2318, Yuhangtang Road, Hangzhou City, Zhejiang Province, P. R. China
Luoqiu Tang: ��Shanghai University of Finance and Economics, School of Finance, No. 777, Guoding Road, Shanghai, P.R. China

The Singapore Economic Review (SER), 2022, vol. 67, issue 06, 1925-1949

Abstract: Given the risks of shadow banks and their risk contagion with the housing market, this study investigates the necessity, policy transmission mechanism and impact of incorporating shadow banks into a macroprudential regulation framework. It constructs a dynamic stochastic general equilibrium (DSGE) model incorporating housing market volatility and heterogeneous financial intermediation, where housing market volatility transmits to the financial intermediation sector through the collateral channel. Meanwhile, regulatory asymmetry expands the shadow banking scale and leverage indicators driven by the housing market, increasing the shadow banking risk. Moreover, considering shadow banking credit size, the macroprudential regulation framework can mitigate the volatility of economic variables and maintain macro-financial and economic stability under the conditions of tightening monetary policy and strengthening regulation. However, policy effects are limited in curbing shadow banking risks from housing market fluctuations. Thus, it is necessary to crop the source of shadow banking risks from the transmission mechanism, formulate more targeted and specialized regulatory policies to complement housing market control measures, maximize cross-market effects among different policies, and incorporate shadow banking into the regulatory system.

Keywords: Housing market volatility; shadow banks; macroprudential regulation; countercyclical capital regulation; dynamic stochastic general equilibrium (search for similar items in EconPapers)
JEL-codes: E32 E44 G23 R21 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0217590822500527

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