The Impact of Shadow Banking Scale on China's Macro Economy

Abstract

Based on the annual data of 14 provinces in seven regions of China from 2006 to 2017, this paper constructs a panel vector autoregression (PVAR) model to analyze the dynamic relationship among China's shadow banking scale, price stability and economic development. The results show that when the size of shadow banking is under a positive impact, GDP per capita and CPI will decline. This paper explains that the expansion of shadow banking leads to excessive concentration of capital in the financial sector, which inhibits the development of the real economy. Through variance decomposition, it can be seen that, in each forecast period, the change of shadow banking scale is mainly affected by its own impact, while the change of macroeconomic variables such as per capita GDP and CPI is largely affected by shadow banking scale impact.