The Impact Of Major Developed Economies’ Monetary Policies On Systemic Financial Risks In China

In the dollar-centered world monetary system,the monetary policy adjustment of the United States and other major developed economies has always played an important role in"affecting the whole body" in different historical periods.In particular,the continuous"violent interest rate hike" in the United States since March 2022 has caused collective panic in emerging economies and led to financial market turmoil and even financial crisis in some countries.Judging from the performance of emerging economies after previous US interest rate rises,when a strong appreciation of the dollar coincides with the Fed’s tightening of monetary policy,it usually leads to a crisis in emerging economies.Judging from the performance of emerging economies after the implementation of unconventional quantitative easing monetary policies by major developed economies,the large-scale liquidity injection makes emerging economies face the risk of flooding liquidity.From the current divergence of global monetary policies,major developed economies are relatively consistent in the trend of tightening monetary policies,while some emerging economies are forced to raise interest rates to avoid sharp depreciation of exchange rates.Under the pressure of monetary policy tightening of major countries in the world,how to maintain the autonomy of monetary policy for emerging economies represented by China while ensuring the stability of exchange rate has become an important problem for macro-control decision-making.The research in this paper extends the theoretical mechanism of monetary policy spillovers to the field of systemic financial risks,which can further expand and supplement the existing literature on monetary policy spillovers,and provide reference for China’s macro decision-making departments to formulate monetary policies,so as to promote the effectiveness and autonomy of monetary policy implementation.As the largest emerging economy in terms of economic strength and influence,China is at a critical stage of comprehensively deepening reform.However,influenced by international uncertainties such as the tightening of global monetary policy,the continuation of the COVID-19 pandemic and the prevailing trend of trade against globalization,China’s financial system is facing increasing risks.In the reports of government work conferences in recent years,it can be seen that macro-control departments attach great importance to identifying and preventing systemic financial risks.Since its accession to the WTO in 2001,China’s economy has been continuously integrated into the world economic system.At the same time,with the increasing degree of trade opening to the outside world,China’s financial industry has gradually and steadily integrated with the international financial system.China has assumed important responsibilities and obligations as a major country in advancing global governance and regional cooperation.By signing the Regional Comprehensive Economic Partnership Agreement,the Comprehensive and Progressive Trans-Pacific Partnership Agreement and the Digital Economy Partnership Agreement,China has actively promoted the multilateral opening of financial markets and built a regional financial security network.In particular,with the advancement of the internationalization of RMB,the development of China’s financial industry faces the pressure of opening up both internally and externally.On the one hand,it needs to constantly improve the supporting system of financial opening to solve the internal operation problems;on the other hand,it needs to strengthen financial supervision to prevent external risks.Due to the complexity of financial opening factors,it is necessary to carefully discuss and study the implementation path and implementation sequence of financial opening,and formulate relevant regulatory measures to reduce risks.On the one hand,this study conducted a detailed and comprehensive examination and analysis of the moderating and mediating effects of financial opening-up factors,which is conducive to accurately identifying the mode and degree of action of financial opening-up.It conforms to the current development plan of the financial sector and can promote high-quality opening-up of the financial sector.On the other hand,it can effectively promote the reform of China’s financial regulatory system.Complement and improve the relevant financial system.The research on systemic financial risk was mainly formed after the international financial crisis in 2008.However,there is no unified and standardized definition of systemic financial risk in the academic circle,and most scholars believe that it refers to the possibility of the impact outside the financial system or the risk event of a financial institution inside the financial system to cause great harm to the whole financial system and even the macro economy.The sources of systemic financial risks can be mainly divided into external and internal sources.The external causes include the fluctuation of economic cycle,the imperfect financial supervision system and the failure of macro-control,etc.,while the internal causes include the lack of effectiveness of financial markets,the vulnerability of financial institutions themselves,the excessive innovation of financial products,the excessive use of leverage instruments,and the strong correlation between the business and liabilities of financial institutions.The maturity of China’s financial system is still far from that of major developed economies.However,as the financial sector continues to open to the outside world,the impact of major monetary policy adjustments of major developed economies may increase.Strengthening the identification,prediction and supervision of systemic financial risks has become the focus of the global financial sector and an important reference target for macroeconomic regulation.China should also build and improve a systemic financial risk supervision system suitable for China’s national conditions.The study of this paper is conducive to supplementing and improving the world’s current systemic financial risk supervision system,expanding the information and dimension of financial supervision,and promoting the construction of China’s systemic financial risk early warning system and supervision mechanism to prevent China’s systemic financial risks.This paper focuses on the spillover effect of monetary policy adjustment in major developed economies on China’s systemic financial risks from an external perspective,and explores the important role of financial openness.Its theoretical and practical significance includes:First,it is conducive to establishing and improving the early warning system and supervision mechanism of systemic financial risks,and preventing systemic financial risks.Second,we will further expand and supplement the existing literature on the spillover effects of monetary policy,and comprehensively measure the financial system’s response to external shocks.Third,it provides reference for macro decision-making departments to formulate monetary policy,and promotes the effectiveness and autonomy of monetary policy implementation.Fourth,effectively promote the reform of the financial regulatory system and maintain financial stability.Fifth,it conforms to the current development plan in the financial field and can promote high-quality opening up in the financial field.Through the construction of China’s systemic financial risk composite index,this paper studies the impact of monetary policies of major developed economies on China’s systemic financial risk from an external perspective,and discusses the important role of financial opening factors in the transmission process.The main research contents of this paper include:First of all,the theoretical mechanism of this study is deduced to lay a theoretical foundation for the empirical part.First,by combing the Mundell-Fleming model,exchange rate determination theory,Keynesian currency theory,comparative advantage theory and McDougall model,it clarifies the principle of major developed economies affecting China’s systematic financial risk,and on this basis,it improves and deduces the model of major developed economies affecting China’s systematic financial risk.Second,by combing the financial repression theory and financial deepening theory,it clarifies the principle of the role of financial opening factors,and on this basis,it improves and deduces the model of financial opening factors.Secondly,construct China’s systematic financial risk composite index to provide important variables for the empirical part.First,analyze the necessity of building a comprehensive index,and clarify the importance of building a comprehensive index of China’s systematic financial risk.Second,select six dimensional indicators,including stock market,bond market,banking system,foreign exchange market,real estate market and government departments,to build subsystem risk index and weighted composite index respectively,and conduct trend analysis.Third,the validity of the composite index is analyzed,emphasizing the scientific and practical nature of the construction of the composite index.Besides,under different assumptions,we use different models to conduct an empirical study on the impact of monetary policies of major developed economies on China’s systemic financial risks.First,on the basis of linear hypothesis,the paper conducts an empirical study on the heterogeneous impact of different monetary policies adopted by the United States,Europe,Britain and Japan on China’s systemic financial risks,and compares the transmission effects of exchange rate channels,interest rate channels,capital flow channels and trade channels.Second,on the basis of nonlinear assumptions,the paper introduces financial openness factors,conducts an empirical study on the threshold effect of different monetary policies adopted by the United States,Europe,Britain and Japan on China’s systemic financial risks,and makes a comparative analysis on the regulatory role of financial openness factors in different regional systems.Third,on the basis of time-varying parameter hypothesis,the paper introduces financial openness factors,conducts empirical research on the time-varying impact of major developed economies’ monetary policy adjustment on China’s systemic financial risks,and makes a comparative analysis of the intermediary role of financial openness factors in the short term and long term.Finally,the empirical conclusions are summarized and put forward the corresponding policy recommendations.First,it summarizes the empirical results of the heterogeneous impact,threshold effect and time-varying impact of different monetary policies adopted by major developed economies on China’s systemic financial risks,as well as the regulatory and intermediary role of financial openness factors.In combination with the current international situation and the development status of China’s financial system,we will put forward relevant policy recommendations in terms of strengthening systematic financial risk prevention,optimizing the formulation and implementation of monetary policies,promoting the reform of the financial supervision system and promoting high-quality opening up in the financial sector.The main conclusions of this paper include:First,major developed economies adopt price-based and quantitative monetary policy tools for monetary policy adjustment,which has heterogeneous spillover effects on China’s systemic financial risks.The transmission significance of price monetary policy is stronger than that of quantitative monetary policy,and the explanatory power of quantitative monetary policy is stronger than that of quantitative monetary policy.The explanatory power of monetary policy for systemic financial risk is strongest in the US,followed by the EU and the UK,and weakest in Japan.Second,the monetary policies of major developed economies indirectly transmit China’s systemic financial risks through the exchange rate channel,the interest rate channel,the trade channel and the capital flow channel,and the transmission effects are heterogeneous.The trade channel has the strongest transmission significance,while the interest rate channel has the strongest explanatory power.The United States,the European Union and the United Kingdom mainly affect systemic financial risks through trade channels and capital flow channels,while Japan mainly affects systemic financial risks through capital flow channels and interest rate channels.Third,there are significant differences in the spillover effects of monetary policies of major developed economies on China’s systemic financial risks in different regional systems bounded by the threshold value of financial openness.In the zone system with higher degree of financial openness,the spillover effect of monetary policies in major advanced economies is relatively stronger.The spillover effect of price monetary policy is more significant than that of quantitative monetary policy in different zone systems.Fourth,financial openness plays a significant moderating role in the impact of monetary policies of developed economies on China’s systemic financial risks,and the moderating role is different.The structural change in the impact of US monetary policy occurred during a period when real financial openness was characterized by a higher level of net capital inflows,and the spillover effects of US monetary policy were much higher than those of the EU,UK and Japan during this period.Fifth,the impact of monetary policies of major developed economies on China’s systemic financial risks is time-varying,and the short-term impact is more significant than the medium-to long-term impact.In a period or time when the international economic and financial environment changes rapidly,the impact of external monetary policy shocks on systemic financial risks is usually higher.Sixth,financial openness plays a significant mediating role in the impact of monetary policies of major developed economies on China’s systemic financial risks,and this role is more obvious in the short term than in the medium and long term.The short-term impact of monetary policies in major developed economies depends on spontaneous market adjustment,while the medium-and long-term impact will be smooth under the regulation of relevant government policies.The main innovations of this paper include:First,from the perspective of research content,this paper focuses on the impact of monetary policy shocks in major developed economies on China’s systemic financial risks.In the existing literature,there are still few studies on the impact of monetary policy adjustment in one country on systemic financial risk in other countries,and the discussion content of heterogeneity is not perfect.In this paper,we study the United States,the European Union,Britain and Japan adopted different monetary policy impact on China’s heterogeneity effect of systemic financial risk can be more comprehensive and more detailed reflects the advanced economies to take different monetary policy tools,at different times by different transmission channels of the differentiation characteristics of overflow,and effectively extend the spillover effects of monetary policy.Second,from the perspective of research,this paper adds financial openness into the impact of monetary policies of major developed economies on China’s systemic financial risks,and explores its moderating and mediating effects.In the existing literature,the role of financial openness factors is not discussed enough in the process of studying the spillover effects of monetary policies in major advanced economies.This paper summarized the function of the open financial factors regulating function and the intermediary role,separately carries on the empirical test,and the regulation of financial openness factors are discussed in detail and intermediary role characteristic and function way,from the perspective of financial openness increases in this paper,we study the depth of the problem,to supplement and perfect the existing literature.Third,from the research level,this paper transitions from the linear hypothesis,to the nonlinear hypothesis,and then to the time-varying parameter hypothesis,constantly upgrading the limiting conditions of the impact of monetary policies of major developed economies on China’s systemic financial risks.The existing literature usually adopts a certain research hypothesis to test the spillover effect of monetary policy,and does not discuss different hypotheses separately.In this paper,structural vector auto-regressive model,threshold auto-regressive model and time-varying parameter random volatility vector auto-regressive model are respectively adopted to conduct multi-level discussion on the research issues in this paper,so as to enrich and improve the research results and make the research conclusions more convincing.