Study On The Intermediate Targets Selection In China’s Monetary Policy Operation Under The Impact Of The Shadow Banking

With the gradual improvement of the economic development and financial system, the size of the shadow banking is becoming huge. The shadow banking system is to some extent independent of the control of traditional monetary policy which has a significant impact on the effectiveness of our current monetary policy. Based on the study on the research of domestic and foreign scholars on the shadow banking system and the impact of shadow banking on the effectiveness of monetary policy, it was found that under the shadow banking background, due to the financial instruments innovation and the development of diversified financing channels, the liquidity of economy is greater than the liquidity controlled by central bank, which brings the current China’s traditional monetary policy intermediate target M2 to be unable to meet the need of economic development.Intermediate target of monetary policy is an important part of monetary policy. To ensure the realization of the ultimate goal and the effectiveness of policy conduction the first condition is to select the appropriate intermediate target. Price-based indicator, such as interest rates, exchange rates and so on, is the first choice as the intermediate target of monetary policy in many countries of the world. As the degree of marketization of China’s financial market and interest rate market is low, the price-based intermediate target can not work well under this kind of economic environment. Therefore, as the interest rate does not fully market-oriented, it is necessary to find a quantitative monetary policy intermediate target during the transitional period. Consider the liquidity created by the shadow banking, AFRE(Aggregate financing to the Real Economy), which contains the shadow banking, can be used as a new intermediate target of monetary policyIn theory, this paper analyzes the shadow banking’s credit creation and the relevance between the shadow banking and AFRE; explores the feasibility of AFRE being as an intermediate target according to the basic theory of monetary policy transmission and intermediate target selection criteria. In empirical aspect, this paper analyzes the impact of China’s shadow banking system on the ultimate goal of monetary policy through co-integration test, Granger causality test, impulse response and variance decomposition by VAR model; compares the dependency of AFRE、traditional M2 and rate which is price-based intermediary target with the ultimate goal of monetary policy. The conclusion is: the shadow banking system affects economic growth and the price level. As the interest rate does not fully market-oriented, the Aggregate financing to the Real Economy should be introduced as a new intermediate target of monetary policy as soon as possible.