The Interaction of Real and Financial Markets in the Global Economy: What Role Does China Play?

Sumru Altug, Cem Çakmaklı and Rüveyda Nur Gözen

Chapter 20 in Handbook of Global Financial Markets:Transformations, Dependence, and Risk Spillovers, 2019, pp 513-550 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the role that China plays in the global economy for the propagation of financial uncertainty and volatility. For this purpose, it seeks to measure the interdependence of real and financial markets for a key set of developed markets — the US, the UK, Germany, and Japan — in relation to China. We employ vector auto-regressions (VARs) and make use of generalized impulse responses and variance decompositions to explore the interconnections among these countries. Among other results, we find that the US, Japan, UK, and Germany are highly integrated and form a cluster in terms of financial market volatility and industrial production growth. Surprisingly, we find that financial market volatility in developed countries is strongly affected by volatility shocks emanating from the Hong Kong Stock Exchange, attesting to the growing importance of Asian financial markets and real activity in the global economy. By contrast, China has a different story. Chinese financial and production markets are decoupled, and Chinese industrial production growth is mainly determined by its own shocks to domestic conditions.

Keywords: Market Integration; Risk Management; Risk Assessment; Financial Uncertainty; Volatility; Financial Markets; Financial Development; Country Risks; Sovereign Debt Markets (search for similar items in EconPapers)
JEL-codes: F37 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.worldscientific.com/doi/pdf/10.1142/9789813236653_0020 (application/pdf)
https://www.worldscientific.com/doi/abs/10.1142/9789813236653_0020 (text/html)
Ebook Access is available upon purchase.

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: https://EconPapers.repec.org/RePEc:wsi:wschap:9789813236653_0020

Ordering information: This item can be ordered from

Access Statistics for this chapter

More chapters in World Scientific Book Chapters from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().