Shadow Banking, Monetary Policy, and Confidence Effects in China: Empirical Research Using a Structural Vector Autoregressive Model

Abstract

By using monthly data regarding the scale of shadow banking, interest rates, loan balances, and the market confidence index in China from 2013 to 2017, this study constructed a structural vector autoregressive model to investigate the impacts of monetary policies and confidence in the economy with a special parallel financial intermediary. The regression results indicated that the tightening of monetary policy had compressive effects on commercial banks and shadow banking in China; however, the characteristics of Chinese shadow banking increased overall economic volatility, making the financial system more vulnerable. In addition, this study determined that the influence of confidence in the market in China, as demonstrated through responses of monetary policy authorities, had a considerable effect on shadow banking. We further determined the channel through which confidence affected the credit scale.