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Shadow Banking,Rigid Payment and Macro Prudential Policy:Based on GK Framework Extension Analysis
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TitleShadow Banking,Rigid Payment and Macro Prudential Policy:Based on GK Framework Extension Analysis  
AuthorLi Jianqiang,Yuan Jia and Wei Lei  
OrganizationFinance Institute, People Bank of China;Research Bureau, People Bank of China;; 
Key WordsShadow Banking; Rigid Payment; Macro Prudential 
AbstractIn recent years, shadow banking in our country has been developing rapidly, which has played a positive role in meeting the demand of residents' wealth management,optimizing the structure of social financing and supporting the real economy. But at the same time, some of its potential risks have exposed gradually, the rigid payment problem is particularly noteworthy. This paper introduces shadow banking into the framework of Gertler and Kiyotaki(2011) to discuss the mechanism of rigid payment risk and evaluate the effect of off-balance-sheet assets in macro prudential framework. The results show that: Firstly, the shadow banking weaken the effectiveness of monetary policy, especially the tight monetary policy reducing the traditional credit scale at the same time, promoting the shadow banking assets expansion, and causing liquidity "water bed effect"; Secondly, rigid payment pushes up the risk-free market interest rates, distorts financial market pricing mechanism, to a certain extent reduces the critical point of robust and fragile of financial markets, increases the financial fragility and the difficulty of financial regulation; Thirdly, the introducing off-balance-sheet assets into the the bank capital requirements of macro-prudential policy significantly improves the inverse cycle regulation effect, through effectively alleviating the liquidity exhaustion and the high financial leverage caused by the risk to triggered the negative feedback loop of asset panic selling; Fourthly, “lean against the wind” capital adequacy regulation is not enough and the importance of breaking rigid payment is no less than the richness and perfection of the macro prudential policy toolbox. Therefore the orderly breaking rigid payment is also an important component of the macro prudential policy framework. 
Serial NumberWP1370 
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