Shadow banks, banking policies and China’s macroeconomic fluctuations

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