Empirical Studies Of U.s. Monetary Policy On China's Output Spillovers

The international transmission and the spillover effects of monetarypolicy have long been discussed,but remain controversial.Thisdissertation documents detailed evidence on the monetary policy spillovereffects from United States to China,and examines the mechanism by whichUS monetary policy shocks are internationally transmitted to China.This dissertation is organized as follows:Chapter l summarizes the corresponding literature.Based on theMundell-Flaming-Dornbush Model and New Open Economy Macroeconomic Model,many researchers have done extensive theoretical studies on theinternational transmission and the spillover effects of monetary policy.Also,there are many empirical researches using VAR method.However,theseresearches have not resolved the ambiguity,which comes from two sources.The first is the prediction of monetary policyspillover effects,and thesecond is the specific transmission mechanism of monetary policyspillover.Chapter 2 examines the spillover effects of US monetary policy shockson China's output based on SVAR model.The empirical results indicate thatthe influence of expansionary US monetary policy to China's output ispositive.In the short run,the portion that US monetary shocks explainfor China is smaller than that of the non-US,G7 countries and Korea,butthey are similar in the long run.In addition,since 1995 the US monetarypolicy spillover effects on China's output tend to be stronger.Chapter 3 makes a theoretical analysis of the spillover effects ofUS monetary policy to China.US monetary policy shocks are transmittedto China by three main channels.The first is the policy channel.China'smonetary policy will respond to the change of US monetary policy.As aresult,China's output will adjust accordingly.The second is the tradechannel.US monetary policy shocks will influence China's trade balance,and thus China's output through the expenditure switch effects and theincome absorption effects.The third channel is by assets price.theadjustment of the international capital flow and the expectation ofinvestors caused by US monetary shift would have some impacts on China's asset price,which will affect China's output through wealth effects andTobin's Q.Chapter 4 examines the transmission channels by which US monetarypolicy transmits to China.The empirical results indicate thatexpansionary US monetary policy can lower China's interest rate andenlarge its money supply.Although the RMB exchange rate formationmechanism reform in 2005 has improved the independence of China monetarypolicy,the central bank had to maintain exchange rate stable,and thusits policy follows US policy to some extent.China's trade balance woulddeteriorate in the short run under the influence of US monetary policy,while turn to improve in the long run.Thus the direction of the policyshock to the trade balance is determined by both the expenditure switcheffect and the income absorption effect.However,the latter would becomeeven more important in the long run.Moreover,the expansionary USmonetary policy would lead to the decline of China's stock return by theasset price channel.Chapter 5 compares the importance of various transmission channelsby which US monetary policy transmits to China.By using the variancedecomposition method,the author concludes that the policy turns to bethe most important among all the three channels,while the asset priceplays the least important role currently.Chapter 6 examines the spillover effects on different regions.Dueto the imbalanced economic development of China's regions,the impactsof US monetary policy shocks vary in regions.It can be found from theresults that the spillover effects of US monetary policy transmit fasterand are slightly stronger in the eastern region than in the middle andwestern regions.Chapter 7 summarizes the results and concludes.