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Housing Market Volatility, Shadow Banks And Macroprudential Regulation: A Dynamic Stochastic General Equilibrium Model Analysis

Author

Listed:
  • JINSONG WANG

    (School of Economics, Hangzhou Normal University, No. 2318, Yuhangtang Road, Hangzhou City, Zhejiang Province, P. R. China)

  • LUOQIU TANG

    (��Shanghai University of Finance and Economics, School of Finance, No. 777, Guoding Road, Shanghai, P.R. China)

Abstract

Given the risks of shadow banks and their risk contagion with the housing market, this study investigates the necessity, policy transmission mechanism and impact of incorporating shadow banks into a macroprudential regulation framework. It constructs a dynamic stochastic general equilibrium (DSGE) model incorporating housing market volatility and heterogeneous financial intermediation, where housing market volatility transmits to the financial intermediation sector through the collateral channel. Meanwhile, regulatory asymmetry expands the shadow banking scale and leverage indicators driven by the housing market, increasing the shadow banking risk. Moreover, considering shadow banking credit size, the macroprudential regulation framework can mitigate the volatility of economic variables and maintain macro-financial and economic stability under the conditions of tightening monetary policy and strengthening regulation. However, policy effects are limited in curbing shadow banking risks from housing market fluctuations. Thus, it is necessary to crop the source of shadow banking risks from the transmission mechanism, formulate more targeted and specialized regulatory policies to complement housing market control measures, maximize cross-market effects among different policies, and incorporate shadow banking into the regulatory system.

Suggested Citation

  • Jinsong Wang & Luoqiu Tang, 2022. "Housing Market Volatility, Shadow Banks And Macroprudential Regulation: A Dynamic Stochastic General Equilibrium Model Analysis," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 67(06), pages 1925-1949, December.
    • Handle: RePEc:wsi:serxxx:v:67:y:2022:i:06:n:s0217590822500527
    DOI: 10.1142/S0217590822500527
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    More about this item

    Keywords

    Housing market volatility; shadow banks; macroprudential regulation; countercyclical capital regulation; dynamic stochastic general equilibrium;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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