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Monetary Policy Transmission in China: A DSGE Model with Parallel Shadow Banking and Interest Rate Control

Michael Funke, Petar Mihaylovski and Haibin Zhu
Additional contact information
Petar Mihaylovski: Hamburg University
Haibin Zhu: JP Morgan Chase Bank

No 122015, Working Papers from Hong Kong Institute for Monetary Research

Abstract: The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.

Keywords: DSGE Model; Monetary Policy; Financial Market Reform; Shadow Banking; China (search for similar items in EconPapers)
JEL-codes: E32 E42 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cna, nep-dge, nep-mac, nep-mon and nep-tra
Date: 2015-05
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Citations: View citations in EconPapers (5) Track citations by RSS feed

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Working Paper: Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control (2015) Downloads
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