Liquidity expansion in China and the U.S. economy

Wensheng Kang, Ronald Ratti and Joaquin Vespignani

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates the influence of liquidity shocks in China on the U.S. economy over 1996-2012. The influence on the U.S. is through China’s influence on demand for imports, particularly that of commodities. In all models estimated a positive innovation in China’s liquidity is associated with: 1) a positive and statistically significant effect on oil and commodity prices that builds up rapidly over three months and then persists for twenty months; 2) a positive and statistically significant effect on U.S. CPI inflation that builds up over about six months or so and then persists; 3) a statistically significant depreciation of the real trade-weighted U.S. currency after about two or three months that achieves maximum absolute value after five to eight months and that then persists.

Keywords: China’s liquidity; oil price; trade-weighted U.S. dollar (search for similar items in EconPapers)
JEL-codes: E0 E4 E44 (search for similar items in EconPapers)
Date: 2014-08-01
New Economics Papers: this item is included in nep-cna and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:59338

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