Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control

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Title: Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control
ISBN: 978-952-323-033-0
Author: Funke, Michael ; Mihaylovski, Petar ; Zhu, Haibin
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
ISSN: 1456-5889
Series year: 2015
Series number: 9/2015
Year of publication: 2015
Publication date: 9.3.2015
Pages: 51
Subject (yso): rahapolitiikka; pankkiala; rahoitusmarkkinat
Keywords: Bofit-kokoelma; Kiina; China
JEL: E32; E42; E52; E58
Other keywords: DSGE model; monetary policy; financial market reform; shadow banking; China
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.
Rights: https://helda.helsinki.fi/bof/copyright


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