SPILLOVER EFFECT OF THE FEDERAL RESERVE’S FORWARD GUIDANCE ON CHINA’S FINANCIAL MARKETS: FROM MECHANISM ANALYSIS TO EMPIRICAL TEST

Xin Deng, Lin Ge and Xuan Wu
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Xin Deng: Hunan University of Technology and Business, 569 Yuelu, Changsha, Hunan 410205, P. R. China†Science and Technology on Information Systems Engineering Laboratory, National University of Defense Technology, Changsha, Hunan 410073, P. R. China
Lin Ge: Hunan University of Technology and Business, 569 Yuelu, Changsha, Hunan 410205, P. R. China
Xuan Wu: ��Hunan Branch of China Construction Bank, Yin’Gang Building, No. 2, Baisha Road, Changsha, Hunan 410011, P. R. China

The Singapore Economic Review (SER), 2022, vol. 67, issue 02, 603-634

Abstract: This study analyzed the channels responsible for the spillover effect of the US Federal Reserve’s (Fed’s) forward guidance on China’s financial markets with an event study and EGARCH model with data collected over the past decade. The Fed’s forward guidance affects China’s foreign exchange, bond, stock and money markets. In the three trading days before and after the event, China’s foreign exchange market had an instantaneous reaction, the bond and stock market had lagged reactions, and the money market reaction lasted for the full event window. The Fed’s forward guidance on China’s financial market differs based on the Fed’s monetary policy, guidance type and whether the guidance content is adjusted or not.

Keywords: Forward guidance; spillover effect; unconventional monetary policy; mechanism analysis (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0217590821500612

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