Department of Economics
1602 Fishburne Drive
Atlanta, GA 30322-2240
Institutional Affiliation: Emory University
NBER Working Papers and Publications
|May 2017||The Nexus of Monetary Policy and Shadow Banking in China|
with Kaiji Chen, Tao Zha: w23377
We estimate the quantity-based monetary policy system in China. We argue that China's rising shadow banking was inextricably linked to banks' balance-sheet risk and hampered the effectiveness of monetary policy on the banking system during the 2009-2015 period of monetary policy contractions. By constructing two micro datasets at the individual bank level, we substantiate this argument with three empirical findings: (1) in response to monetary policy tightening, nonstate banks actively engaged in intermediating shadow banking products; (2) these banks, in sharp contrast to state banks, brought shadow banking products onto the balance sheet via risky investments; (3) bank loans and risky investment assets in the banking system respond in opposite directions to monetary policy tightening, wh...
Published: Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, vol 108(12), pages 3891-3936. citation courtesy of
|January 2016||What We Learn from China's Rising Shadow Banking: Exploring the Nexus of Monetary Tightening and Banks' Role in Entrusted Lending|
with Kaiji Chen, Tao Zha: w21890
We argue that China's rising shadow banking was inextricably linked to potential balance-sheet risks in the banking system. We substantiate this argument with three didactic findings: (1) commercial banks in general were prone to engage in channeling risky entrusted loans; (2) shadow banking through entrusted lending masked small banks' exposure to balance-sheet risks; and (3) two well-intended regulations and institutional asymmetry between large and small banks combined to give small banks an incentive to exploit regulatory arbitrage by bringing off-balance-sheet risks into the balance sheet. We reveal these findings by constructing a comprehensive transaction-based loan dataset, providing robust empirical evidence, and developing a theoretical framework to explain the linkages between ...
Published: Chen, Kaiji, Jue Ren, and Tao Zha. 2018. "The Nexus of Monetary Policy and Shadow Banking in China." American Economic Review, 108 (12): 3891-3936.