Research On The Spillover Effect Of US Monetary Policy On China’s Inflation

In an open economy,the monetary policy of one country not only affect its own economic operation,but also generates spillover effects by affecting the financial and economic operation of other countries.The outbreak of COVID-19 in 2020 has crippled the global economy.In order to boost the domestic economy,the United States and other developed countries have launched unlimited quantitative easing monetary policy.Affected by the loose monetary policies of the United States and other developed countries,global liquidity continues to flood,and assets are forced to bubble,creating hidden dangers for global inflation.According to the US Labor Department,the consumer price index rose 8.5 percent in the year to March 2022,which is the largest increase in nearly four decades.In order to prevent the formation of inflation expectations resonance,countries around the world have increased their vigilance against the inflationary spillover effects of US monetary policy.As a country with close economic ties with the United States,China needs to pay more attention to the spillover effect of the US monetary policy on China’s inflation.Therefore,in the context of the epidemic,it is of great significance to explore the spillover effect of US monetary policy on China’s inflation,resist external shocks and maintain China’s economic and financial security.Based on the background of repeated epidemic and constant adjustment of US monetary policy,this paper deeply explores the spillover effect and channels of US monetary policy on China’s inflation,and further analyzes the time-varying characteristics of the spillover effect on the basis of analyzing the orientation of China’s monetary policy.Specifically,this paper mainly discusses the following four issues:(1)Does the spillover effect of the US monetary policy on China’s inflation exist?If so,what factors affect the spillover effect of the US monetary policy on China’s inflation?(2)What are the channels does the US monetary policy affect China’s inflation?(3)Can China’s synchronized monetary policy effectively control China’s inflation?Can the different choices of China’s monetary policy influence the spillover effect of US monetary policy on China’s inflation?(4)What are the characteristics of the spillover effect of US monetary policy on China’s inflation,and whether is there lag and persistence?In view of the above problems,this paper carries out following researches.First of all,based on monetary policy spillover effect theory,US monetary policy adjustment dynamics and the typical facts of spillover effect,this paper expounds the spillover effect of US on China’s inflation.At the same time,under the framework of dynamic general equilibrium,from the perspective of exchange rate,monetary policy inertia and residents’ risk preference,this paper discusses the existence of the spillover effect of US monetary policy on China’s inflation.Furthermore,by comparing the influence of domestic and foreign factors on China’s inflation,this paper analyzes the role of the US in explaining China’s inflation fluctuations.The results show that,first of all,US monetary policy has obvious spillover effect on China’s inflation,Secondly,in the long run,improving the flexibility of exchange rate regime,the inertia of monetary policy and the risk preference of residents can improve the ability to resist the spillover effect.Finally,US factor has a strong ability to explain China’s inflation fluctuations,and is an important force to promote China’s inflation fluctuations.Secondly,this paper analyzes the spillover channels of US monetary policy to China’s inflation,this paper empirically investigates the spillover channels of US monetary policy to China’s inflation by using the intermediary effect model.It is found that the spillover channels of American monetary policy to China’s inflation includes the price channel,the investment channel and the exchange rate channel.Specifically,from the perspective of price channels,US monetary policy will push up the prices of bulk commodities and the purchasing prices of major raw materials,driving up the producer prices of industrial products,and further aggravating the pressure of inflation.From the perspective of investment channels,US monetary policy will accelerate international capital flow,increase employment and money supply,and aggravate inflationary pressure.From the perspective of exchange rate channel,US monetary policy will affect the stability of RMB value,change the cost and demand of imported goods,and increase imported inflation pressure.Third,under the framework of dynamic general equilibrium analysis,this paper discusses the effects of China’s synchronized monetary policy impact on China’s inflation from the perspective of capital flow and exchange rate,and at the same time,discusses the spillover effects of US monetary policy on China’s inflation under different monetary policy orientations.Then,a time-varying parameter vector autoregressive model is constructed to explore the characteristics of the spillover effects of US monetary policy on China’s inflation by analyzing the effects of Chinese and American policies on China’s inflation.The results show that,first of all,structural monetary policy has stronger control over China’s inflation,and strengthening capital flow control and improving exchange rate flexibility can enhance the effect of this policy.Secondly there are differences in the spillover effects of US monetary policies on China’s inflation under different monetary policy orientations.When China adopts structural monetary policy,the spillover effect of American monetary policy on China’s inflation is the least.Third,the spillover effect of US monetary policy on China’s inflation shows a process from weak to stronger.In other words,the spillover effect of US monetary policy on China’s inflation has the characteristics of lag and persistence.Finally,optimizing the economic structure can effectively reduce the intensity and persistence of the spillover effect of the US monetary policy on China’s inflation.Finally,based on the above research conclusions,and combined the reality in our country,from improving the ability of protection from external shocks,establishing and improve the price monitoring and early warning system,improving the control ability of monetary policy,thus reducing the spillover effects of monetary policy to inflation in China,so as to improve the control force of China’s monetary policy,and maintain financial stability in our country.