The Impact Of US Monetary Policy On China's Economy

Monetary policy is an important measure for the government to carry out counter-cyclical economic regulation.Through adjusting policy interest rate or money supply,the central bank can achieve important economic goals such as economic growth,promotion of employment,price stability and balance of international payments.Under the background of economic globalization and financial integration,the independence of monetary policy of various economies in the world is declining.This is mainly reflected in the US monetary policy adjustment to other countries have an important impact.As the US dollar is an important global currency,the adjustment of US monetary policy is likely to cause external shocks to the economic and financial environment of other developed and developing countries.As the two largest economies in the world,trade and capital flows between China and the United States influence the development direction of the world economy.As the trade conflict between China and the United States intensified and the COVID-19 outbreak hit,the United States haltes the pace of monetary policy normalization,causing the federal funds rate to return to the zero-lower bound.The US monetary policy frequently switches between conventional and unconventional monetary policies,which not only has an important impact on China's economy and finance,but also affects the transmission efficiency of domestic monetary policy to the real economy.This study attempts to answer two important questions.First,what impact does the conventional and unconventional monetary policy of the United States have on China's macro economy? Second,in what ways do these two different policies affect China's real economy? To comprehensively measure the spillover transmission mechanism of US monetary policy,this paper has two characteristics: First,it emphasizes the heterogeneity of the influence of conventional and unconventional monetary policies;Secondly,the dynamic evolution of quantitative policy impact changes in time.Specifically,this paper carries out four aspects of work on the basis of systematic review of relevant literature.First,the evolution mechanism of US and China's monetary policies should be systematically sorted out.After the Second World War,the monetary policy of the United States was dominated by the conventional interest rate policy for a long time and experienced three interest rate cycles.After the financial crisis,in order to boost the economy,the Federal Reserve kept interest rates at the zero-lower bound and switched to unconventional monetary policies,mainly quantitative easing and forward guidance policy.By contrast,China is one of the few countries that has maintained monetary normalization,with ample room for maneuver.After the financial crisis,China on the one hand,through the creation of new policy tools,short-term and long-term liquidity management;On the other hand,it also actively carried out interest rate liberalization reform to promote the transformation of monetary policy from price-oriented to quantity-oriented.Second,our paper analyzes the theoretical mechanism of the spillover of American monetary policy into Chinese economy.From the perspective of traditional policy tools,interest rate transmission,exchange rate,asset prices and credit channels are the main channels.Unconventional policy tools,signal transmission is also an important channel of transmission.Quantitative easing and forward guidance imply a commitment to financial market participants to keep interest rates low for a long time.Thirdly,our research discusses the path analysis of American monetary policy's impact on China's economy and finance through empirical analysis.In this paper,conventional monetary policy and unconventional monetary policy are put into a unified framework.Monthly data from 2001 to 2018 are selected to analyze specific transmission channels based on the vector autoregression model(SVAR)with recursive and symbolic constraints.The basic conclusion of the empirical analysis shows that,within the sample range selected in this paper,the unexpected shocks of both conventional and unconventional monetary policies of the Federal Reserve can have a significant impact on China's GDP and inflation in the short term,among which the exchange rate and interest rate are the main transmission channels.From the perspective of the traditional monetary policy of the United States,raising the federal funds rate and increasing the broad money supply can lead to the improvement of China's macroeconomic level in the short term,which is closely related to the increase in the growth rate of net exports.Moreover,the change of broad money supply and interest rate in China is characterized by fluctuation,but the overall effect is positive.For the unconventional monetary policies of the United States,the expansion of the balance sheet size of the Federal Reserve and the monetary base scale also promoted the increase of China's macroeconomic aggregate and inflation in the short term,but the long-term impact doesn't change.And domestic financial asset prices and global crude oil prices have also risen in the short term.Fourthly,this paper describes the time-varying characteristics of monetary policy spillover effect in the United States through empirical analysis.In this paper,TVP-VAR model with time-varying parameters is used to measure the time-varying transmission mechanism of conventional and unconventional American monetary policies to China's macro economy.The basic conclusion finds that for the conventional monetary policy,the increase of the Federal funds rate in the United States has a positive impact on China's total output in 20 months,which means that China's macro economy maintains a stable growth process.At the same time,the environment of China's monetary policy regulation can also be affected,and the positive impact of the US monetary policy can lead to the rise of China's interest rate.For unconventional monetary policies,the positive change in the size of the federal Reserve's total balance sheet leads to short-term downward pressure on China's total output.However,as time went on,the negative effect gradually diminished and approached zero after 5 months.The expansion of the Fed's balance sheet is good news for China's stock market,with the Shanghai Composite on a rapid upward trend tapering its positive impact to zero in five months.According to the dynamic changes of different shocks,it can be found that the influence of conventional monetary policies represented by interest rates on China's economy lasts for a long time,about 20 months,while the influence of unconventional monetary policies in the United States generally lasts for about 5 months.To sum up,this paper reveals the heterogeneity of monetary policy shock spillover effect in the United States.In the zero-lower bound of interest rate,the unconventional monetary policy of the United States leads to a significant increase in the size of the monetary base and the balance sheet,leading to a significant change in the global dollar supply structure.The research of this paper provides reference for understanding the change of American monetary policy and its impact on Chinese economy.On the one hand,this paper makes a detailed analysis of the background,process and results of the implementation of American policies.On the other hand,it accurately measures the impact effect of monetary policy and its transmission mechanism,which can provide suggestions for China's economy to deal with external risks.Both the conventional and unconventional monetary policy shocks of the federal reserve have a significant impact on China's GDP and inflation,among which the exchange rate and interest rate are the main transmission channels.Higher traditional US interest rates have led to a stronger dollar and higher growth in domestic net exports.The change of broad money supply and interest rate in China is characterized by fluctuation,but the overall effect is positive.For unconventional monetary policies,the increase in the size of the Federal Reserve's balance sheet causes short-term fluctuations in the macro economy and inflation,but the long-term impact tends to zero.The impact of traditional monetary policy represented by interest rate on China's economy lasts for a long time,about 20 months,while the impact of unconventional monetary policy in the United States generally lasts for about five months.