We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Shadow banking activity and entrusted loans in a DSGE model of China.
- Authors
Wang, Chaowei; Mai Le, Vo Phuong; Matthews, Kent; Zhou, Peng
- Abstract
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.
- Subjects
CHINA; SHADOW banking system; NONBANK financial institutions; BANK loans; BANKING industry; MONETARY policy; MACROECONOMIC models; FISCAL policy
- Publication
Manchester School (1463-6786), 2021, Vol 89, Issue 5, p445
- ISSN
1463-6786
- Publication type
Article
- DOI
10.1111/manc.12319