What They Do In The Shadows: Chinese Shadow Credit Growth and Monetary Policy

42 Pages Posted: 10 Feb 2021 Last revised: 27 Sep 2022

See all articles by Harrison Shieh

Harrison Shieh

University of California, Santa Cruz, Division of Social Sciences, Department of Economics

Date Written: January 1, 2021

Abstract

This paper evaluates the effect of Chinese monetary policy shocks on credit creation
through the shadow banking sector in mainland China. I identify monetary policy shocks
by constructing a measure of monetary policy surprises based on changes to the 1-Year
Interest Rate Swaps on the 7-Day Repo Rate on monetary policy announcement dates. A
two-stage local projection was then estimated, using the surprise measure as an instrument.
The results give two key findings: 1) shadow credit expands in response to contractionary
monetary policy, and 2) I provide additional evidence of the transmission of monetary
policy through the interest rate channel.

Keywords: Monetary policy, Local Projections, Shadow Banking, Chinese Economy

JEL Classification: E5, F3, G0

Suggested Citation

Shieh, Harrison, What They Do In The Shadows: Chinese Shadow Credit Growth and Monetary Policy (January 1, 2021). Available at SSRN: https://ssrn.com/abstract=3771673 or http://dx.doi.org/10.2139/ssrn.3771673

Harrison Shieh (Contact Author)

University of California, Santa Cruz, Division of Social Sciences, Department of Economics ( email )

CA
United States

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