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Shadow banks, banking policies and China's macroeconomic fluctuations

Le, Vo Phuong Mai, Matthews, Kent, Meenagh, David, Minford, Patrick and Xiao, Zhiguo 2021. Shadow banks, banking policies and China's macroeconomic fluctuations. Journal of International Money and Finance 116 , 102415. 10.1016/j.jimonfin.2021.102415
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Abstract

This paper develops a model of the Chinese economy using a DSGE framework that accommodates a banking sector and money. The model is used to shed light on the period of the Global Financial Crisis. It differs from other applications in the use of Indirect Inference to estimate and test the model. Officially mandated bank lending and government spending were used to supplement monetary policy to aggressively offset shocks to demand. This paper examines the efficacy of monetary policy in terms of the reduction in the frequency of severe economic slowdowns. We find that monetary policy can be used more vigorously to stabilise the economy, making direct banking controls and fiscal activism unnecessary. A nominal GDP targeting monetary policy is the most efficient, compared with a conventional Taylor Rule, a Friedman rule or a price level targeting rule.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Publisher: Elsevier
ISSN: 0261-5606
Date of First Compliant Deposit: 6 May 2021
Date of Acceptance: 25 April 2021
Last Modified: 08 Jul 2021 13:13
URI: http://orca.cardiff.ac.uk/id/eprint/140952

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