The Nexus of Monetary Policy and Shadow Banking in China

By Kaiji Chen, Jue Ren, Tao Zha. The American Economic Review, 2018

459 citations recorded by the source corpus.

We study how monetary policy in China influences banks’ shadow banking activities. We develop and estimate the endogenously switching monetary policy rule that is based on institutional facts and at the same time tractable in the spirit of Taylor (1993). This development, along with two newly constructed micro banking datasets, enables us to establish the following empirical evidence. Contractionary monetary policy during 2009–2015 caused shadow banking loans to rise rapidly, offsetting the expected decline of traditional bank loans and hampering the effectiveness of monetary policy on total bank credit. We advance a theoretical explanation of our empirical findings. (JEL E32, E52, G21, O16, O23, P24, P34)

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4f157ee0e267a4b549b2b3d69e7b1a9214f4b4f3

Citations in the corpus

• Banks, Liquidity Management, and Monetary Policy (2014, unknown): “Some early steps were taken by Gertler and Karadi (2011) and Curdia and Woodford (2009), who show how shocks that disrupt financial intermediation can have important effects on the real economy. Following these papers, a large literature has studied how various policies affect bank equity and macroe”