Research On The Relationship Between Shadow Banking, Asset Prices And Financial Stability

Since the financial crisis in 2007,the rapid expansion of the scale of shadow banking in China has posed potential risks to financial stability.In the past decade,the government's control over the rapid development of shadow banking has been continuously strengthened,and the security of shadow banking funds flowing into the real economy has been strictly ensured.This paper summarizes the domestic and foreign research results,and outlines the definition and development stage of shadow banking and asset prices.This paper studies the impact mechanism between shadow bank size,asset price and financial stability from the direct impact of shadow banking on financial stability and the indirect impact of shadow banking on financial stability through asset prices two aspects.This essay selects real estate prices and stock prices as the typical asset price variables.FSI(financial stability index)is a kind of composite index by using PCA(Principal Component Analysis)to reduce dimensions which is based on the three major categories and nine basic indicators for measuring financial stability.The TVP-VAR model(time-varying parameter vector autoregressive model)is used to conduct an empirical analysis on 120 relevant economic data of China from January 2009 to December 2018.The empirical results show that: in terms of indirect impact,the size of shadow banking has a positive spillover effect on real estate prices and stock prices,and then real estate prices have a negative spillover effect on financial stability.Stock price first has a negative spillover effect on financial stability and then turns to weak positive spillover effect.Therefore,the expansion of the scale of shadow banking promotes the rise of asset prices,which is not conducive to financial stability.In terms of direct impact,the scale of shadow banking has a negative spillover effect on financial stability,and the expansion of shadow banking threatens the stability of the financial system.In view of this,this paper proposes policy implications from four aspects:credit,shadow banking,asset prices and macro-prudential supervision,which are more beneficial to the stability of China's financial system.