Author(s)

He Cong¹, Yang Chen²

¹Institute of Economics, School of Social Sciences, Tsinghua University, Beijing, China.
²School of Economics, Peking University, Beijing, China.

We introduced a financial intermediary system including shadow banks into a New-Keynesian dynamic stochastic general equilibrium framework and analyzed the effect of confidence on the real economy. A model simulation indicated that confidence boosts growth and promotes consumption and investment in the real economy. The effects on the shadow banking system and traditional commercial banking system differed, thereby providing a new perspective for policy-making and economic structure model research.

Shadow Banking, Optimism, Dynamic Stochastic General Equilibrium Model, Confidence Shock

Cong, H. and Chen, Y. (2018) Effect of Confidence Shock on an Economy with a Shadow Banking System: Analysis Based on Dynamic Stochastic General Equilibrium Model. Theoretical Economics Letters, 8, 3285-3300. doi: 10.4236/tel.2018.815203.