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Monetary Policy Transmission in China: A DSGE Model with Parallel Shadow Banking and Interest Rate Control

Author

Listed:
  • Michael Funke

    (Hamburg University, CESifo, Munich, and Hong Kong Institute for Monetary Research)

  • Petar Mihaylovski

    (Hamburg University)

  • Haibin Zhu

    (JP Morgan Chase Bank)

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.

Suggested Citation

  • Michael Funke & Petar Mihaylovski & Haibin Zhu, 2015. "Monetary Policy Transmission in China: A DSGE Model with Parallel Shadow Banking and Interest Rate Control," Working Papers 122015, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:122015
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    References listed on IDEAS

    as
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    Cited by:

    1. Damien Cubizol, 2017. "Transition and capital misallocation: the Chinese case," Working Papers halshs-01176919, HAL.
    2. Liu, Chunping & Ou, Zhirong, 2017. "What determines China's housing price dynamics? New evidence from a DSGE-VAR," Cardiff Economics Working Papers E2017/4, Cardiff University, Cardiff Business School, Economics Section.
    3. Chang, Chun & Liu, Zheng & Spiegel, Mark M. & Zhang, Jingyi, 2019. "Reserve requirements and optimal Chinese stabilization policy," Journal of Monetary Economics, Elsevier, vol. 103(C), pages 33-51.
    4. repec:eee:jimfin:v:81:y:2018:i:c:p:88-115 is not listed on IDEAS
    5. repec:eee:reveco:v:57:y:2018:i:c:p:211-236 is not listed on IDEAS

    More about this item

    Keywords

    DSGE Model; Monetary Policy; Financial Market Reform; Shadow Banking; China;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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