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IS U.S. MONEY CAUSING CHINA'S OUTPUT?

Anders Johansson ()

No 2009-6, Working Paper Series from Stockholm School of Economics, China Economic Research Center

Abstract: This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that the main monetary instrument in the U.S., the Federal Fund Rate, Granger causes China’s output. A second monetary variable, U.S. money supply, does not seem to have a significant effect on China’s output. The results are supported by variance decompositions, which indicate that Federal Fund Rate shocks have an effect on China’s real output. The findings have important implications for policy makers in China that focus on maintaining a high and stable economic growth.

Keywords: China; United States; Monetary policy; Output; Causality; VECM (search for similar items in EconPapers)
JEL-codes: C32 E40 E51 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cna, nep-fdg, nep-mac, nep-mon and nep-tra
Date: 2009-03-15, Revised 2009-05-15
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Forthcoming in China Economic Review.

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