The Impact Of The Shadow Banking System On The Effectiveness Of China’s Monetary Policy

Monetary policy is the basic means of a government to achieve policy goals about balanced economic output, promote structural adjustment and keep economic healthy development, effective monetary policy is directly related to the stable development of the economy and finance. With the improvement of China’s financial system, China’s shadow banking system developed rapidly and formed a certain scale, the expansion of the scale and complexity of the structure in the shadow banking system and functions of certain financial instruments as money in capital flows, making the effect of shadow banking system impact on China monetary policy formulation, implementation and regulation is also growing. In this context, analysis the current development status and credit creation mechanism of the shadow banking system, explore the affecting mechanism of the shadow banking system impact on the effectiveness of monetary policy, it has great significance to improve China’s monetary policy system and strengthen the macroeconomic regulation.This paper is deeply studied the impact of the shadow banking system on the effectiveness of China’s monetary policy which based on the theoretical analysis and empirical research. The specific work is as follows:First of all, the research background and significance of this paper are introduced. At the same time, the relevant research results of scholars at home and abroad about the shadow banking system and monetary policy effectiveness are summarized. Secondly, the concept of the shadow banking system are defined and the current development of the shadow banking system are researched using the statistical data, and then use the trust loans as an example,the credit creation mechanism of the shadow banking system are introduced. Again, considering the actual situation of China’s shadow banking system and monetary policy, the impact of the shadow banking system on the effectiveness of China’s monetary policy are detailed researched from monetary policy tools, operating goals, intermediate goals, and the transmission mechanism. Then, the trust loans and entrusted loans are selected as the size of the shadow banking system on the empirical research, the impact of the shadow banking system on the intermediate target and the ultimate goals of China’s monetary policy are detailed researched using the VAR models, the extent of the shadow banking system impact on the effectiveness of China’s monetary policy are introduced. The results show that the shadow banking system is the reason of making the money supply, economic growth, inflation rate changes, leads to an increase on the actual money supply in financial markets. Meanwhile, the price level volatility first, and then economic growth will volatility under its influence. Finally, according to the conclusions of this article, policy recommendations are proposed to improve the effectiveness of China’s monetary policy based on the regulatory of the shadow banking system and the adjustments of the monetary policy.