Economics at your fingertips  

Three channels of monetary policy international transmission: Identifying spillover effects from the US to China

Mi Zhang, Ahmet Sensoy, Feiyang Cheng and Xuankai Zhao

Research in International Business and Finance, 2022, vol. 61, issue C

Abstract: We identify and compare three channels through which the adjustment of US monetary policy spills over into China, including trade, exchange rate, and financial channels. A proxy vector autoregression model, with a high-frequency identification strategy, is applied to measure the causal effect of monetary policy shocks to the fundamentals of China’s economy. The analysis reveals that tightness in US monetary policy increases inflation in China by 0.2% and drives down output by 1%. We also find that the spillover effect from the US to China is immediate and significant through each of the three channels. Furthermore, the financial channel is significant in terms of its effect on interest rate expectations and long-term financing premia for Chinese companies. Our results support the notion of the financial channel as a key transmission mechanism for cross-country spillovers of monetary policy, which should be of much interest to participants in financial markets.

Keywords: US monetary policy; China; Financial transmission channel; Spillovers; Proxy VAR model (search for similar items in EconPapers)
JEL-codes: E44 E52 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.ribaf.2022.101670

Access Statistics for this article

Research in International Business and Finance is currently edited by T. Lagoarde Segot

More articles in Research in International Business and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2023-11-18
Handle: RePEc:eee:riibaf:v:61:y:2022:i:c:s0275531922000587