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The Manchester School - 2020 - Wang - Shadow banking activity and entrusted loans in a DSGE model of China.pdf (986.36 kB)

Shadow banking activity and entrusted loans in a DSGE model of China

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posted on 2023-07-19, 09:58 authored by Chaowei WangChaowei Wang, Vo Phuong Mai Le, Kent Matthews, Peng Zhou

This paper examines how the risky lending activities of the state-owned enterprises (SOEs) affect the effectiveness of monetary and fiscal policy in China with a shadow banking sector. We develop a dynamic stochastic general equilibrium (DSGE) macroeconomic model with two production sectors, where the SOEs have access to low cost funds from the commercial banks (also mainly state-owned) and on-lend to the private sector in the form of entrusted loans. The Bayesian estimation results show that higher restrictions on bank credit push SOEs to engage in more shadow banking in this form which dampens the effectiveness of contractionary monetary policy. Expansionary fiscal policy increases output, but crowds out private investment, which can further drain the financial market and exert a detrimental effect on the Chinese economy.

Funding

Shadow Bank and China's Economy: A Framework from Micro to Macro

National Natural Science Foundation of China

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Shadow Banking and the Chinese Economy: A Micro to Macro Modelling Framework

Economic and Social Research Council

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History

School

  • Loughborough Business School

Department

  • Business

Published in

The Manchester School

Volume

89

Issue

5

Pages

445 - 469

Publisher

The University of Manchester and John Wiley & Sons Ltd

Version

  • VoR (Version of Record)

Rights holder

© The Authors

Publisher statement

This is an Open Access Article. It is published by The University of Manchester and John Wiley & Sons Ltd under the Creative Commons Attribution 4.0 International Licence (CC BY). Full details of this licence are available at: https://creativecommons.org/licenses/by/4.0/

Acceptance date

2020-04-29

Publication date

2020-05-24

Copyright date

2020

ISSN

1463-6786

eISSN

1467-9957

Language

  • en

Depositor

Dr Chaowei Wang. Deposit date: 12 July 2023

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