BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 9/2015:
Monetary policy transmission in China: A DSGE model with parallel shadow banking and interest rate control
Michael Funke ()
, Petar Mihaylovski ()
and Haibin Zhu ()
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; (follow links to similar papers)
JEL-Codes: E32; E42; E52; E58; (follow links to similar papers)
51 pages, March 9, 2015
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