Research On The Short-term And Long-term Impact Of The US Quantitative Easing Monetary Policy On China's Economic Stabilit

The subprime mortgage crisis that broke out in the United States in 2008 caused turmoil and panic in the international financial market,and gradually developed into a global economic crisis that resulted heavy losses to countries all over the world.During the subprime mortgage crisis,the Federal Reserve implemented four rounds of Qantitative Easing(QE)monetary policy,which played a positive role in restoring the US economy,but it also had a shocking effect on the economy of other countries.China and the United States are two major economies in the world,taking the close economic and trade relationship into account,how to look at the impact of US monetary policy on China’s economy from a more comprehensive and macro perspective,and how to scientifically evaluate the stability under the New Normal of China’s Economy,and how to accurately describe the deviation of China’s short-term economic condition from long-term trends under the influence of external shocks,all these questions are related to the ability to accurately portray the impact of foreign monetary policies on China’s economy,and it is also related to the reasonable judgment of whether China’s economic growth is stable.And they also affect the timeliness and effectiveness of China’s macro-control measures,at the same time have important theoretical value and practical significance.This thesis mainly studies the short-term and long-term effects of the United States’ quantitative easing monetary policy on China’s economic stability.According to Keynes’ s economic cycle theory,and under the consideration of four main goals of macroeconomy and the requirements for stable economic growth of the new normal,China’s Economic Stability Conditions Index(CESCI)was constructed.By setting the threshold line and boundary line of CESCI,four thresholds for judging China’s economic stability are delineated.On this basis,an econometric model and a rolling regression analysis model based on the event study were established.The U.S.monetary policy indicators and CESCI from January 2004 to June 2019 were used for modeling,and the short-term and long-term perspectives were analyzed respectively.The impact of quantitative easing monetary policy in the United States is analyzed,and relevant research conclusions and countermeasures are obtained.The innovations of this thesis are mainly in the following three aspects: Firstly,by constructing CESCI,it provides a new research tool for studying China’s macroeconomic cyclical fluctuations and measurs the impact of external shocks,and also examins external shocks from a relatively comprehensive perspective.CESCI provides more objective data support for my country’s macro-control policies,and offers a reference for macro decision-makers and investors to grasp the current overall economic stability and future economic stability.Secondly,when constructing CESCI,learned from the financial stability index FSCI proposed by Van den End(2006),this thesis introduces consideration of three factors which as follows,main objectives of China’s macroeconomic regulation,indicators that play a key role in the transmission of monetary policy,and the degree of adaptation of economic and financial indicators to the overall economic development level.The choice of economic indicators and construction methods are closer to macroeconomic policy control and the expected smoothing effect.Thirdly,this thesis focuses on the discussion of the impact of the US quantitative easing monetary policy on China’s economy,especially on the impact on China’s economic stability,and analyzes the deviation of China’s short-term economy from long-term trends under the influence of the Fed’s QE policy.It fits with the background that China is increasingly emphasizing the importance of stable economic growth under the new normal.Judging from the short-term impact of the US quantitative easing monetary policy on China’s economic stability,the impact direction of each round of quantitative easing monetary policy is roughly the same as that of CESCI over the same period.However,the actual impact of each round of QE on China’s economic stability has been weaker than the previous round,indicating that there are other factors that have hedged the impact of the subsequent QE.This factor is most likely to be China’s macro-control measures during the same period and indirectly proves the follow-up.effectiveness.Among the multiple rounds of QE during the subprime mortgage crisis,CESCI fluctuated the most during the event window of the first round,indicating that China’s economic development during this period was relatively unstable,and the United States’ QE has played a role in exacerbating this unstable change.From the perspective of the long-term impact of the US QE on CESCI,quantitative monetary policy is the main factor that exacerbates the instability and volatility of China’s economy,and the impact of price-based monetary policy on China’s economic stability is concentrated before the subprime mortgage crisis.In quantitative monetary policy,the Fed’s repurchase of US Treasury bonds has a strong impact on China’s economic stability,and the impact period covers almost the entire period of the subprime mortgage crisis;the Fed’s repurchase of US mortgagebacked bonds and US federal agency bonds has a relative week impact on CESCI and the impact period is mainly concentrated in the middle and late stages of the subprime mortgage crisis.In the process of the Fed’s long-term impact on China’s economy,the impact of various bond repurchases on China’s economic variables has also changed over time,and the impact of various bonds as well as the impact period are also different.This thesis is mainly divided into seven chapters,mainly starting from the research status,theoretical models,transmission mechanism,and also discusses the impact of the US QE on my country’s economic stability.The first chapter is the introduction,mainly illustrates the significance of the research background,literature review,research design and innovation points of this article.The second chapter briefly introduces the model theory and research methods.In Chapter 3,this thesis analyzes the background and specific steps of the United States’ implementation of QE and provides a basis for setting the event timing and interval for the event study method in Chapter 6.This thesis also analyzes the necessity and policy environment for the United States to implement QE again.Through summarizing the general laws of economic phenomena and quantitative verification of empirical models,as well as collating the conclusions of existing research literature,the author finds that the US economy is overheating and there is a greater possibility of entering a recession.In order to restore the economy,the Fed will have to lower the federal funds rate.The current US nominal interest rate is in the range of 2%-3%,and the operating space for interest rate policy is limited.Therefore,the Fed is more likely to continue to adopt QE.In Chapter 4,this thesis sorts out the monetary policy frameworks of both United States and China,furthermore the used monetary policy tools,summarizes the overall goals and strategies of the United States’ monetary policy,and clarifies the scenarios,application objects and effects of various monetary tools in achieving the Fed’s economic goals.Monetary tools play a major role under different transmission channels in the discussion of the monetary policy transmission mechanism in Chapter 5.It also provides a realistic basis for the selection of US monetary policy indicators in Chapter6.At the same time,in order to learn from the successful experience of the United States in the QE,this thesis also compares the similarities and differences in the innovation of monetary tools between China and the United States during the subprime mortgage crisis,and proposes relevant countermeasures in Chapter 7.In Chapter 5,this thesis reviews the transmission model of Mundell-Fleming and Dornbusch,and their monetary policy between the economies of the two countries,theoretically proves the mutual influence between two countries,and summarizes the main monetary policy transmission mechanism mentioned in the literature,also establishes the impact transmission path of the Fed’s monetary policy on China’s economy.These analysises provide theoretical support for the empirical research on the economic impact of the two countries in Chapter 6.At the same time,the key economic indicators involved in interest rate channels,currency channels,credit channels,international capital flow channels,international trade channels,liquidity channels,investment portfolio balancing channels,and signal channel transmission mechanisms will also be included in Chapter 6.They also serve as considerations for constructing CESCI.In Chapter 6,this thesis discusses the necessity of studying economic stability and constructs CESCI,and carries out relevant statistical tests on it.In the process of constructing CESCI,comprehensive consideration was given to three factors as follow:the main objectives of China’s macroeconomic regulation and control,indicators play a key role in the transmission of monetary policy,and the degree of adaptation between economic and financial indicators and the overall level of economic development.The CESCI was constructed with the purpose of measuring the deviation of China’s shortterm economy from long-term trends,so as to more comprehensively and accurately analyze China’s economic stability after the impact of the US QE.In the second half of this chapter,this article also selects relevant indicators that can better portray the QE of the United States based on the analysis conclusions of Chapters 4 and 5.Combined with the CESCI,it establishes a measurement based on the event study,model and rolling regression analysis model,analyze the impact of the US QE from the short-term and long-term perspectives,and then provide empirical research support for the countermeasures and recommendations in Chapter 7.In the seventh chapter,this thesis reviews the research work of the previous chapters,summarizes the relevant conclusions and countermeasures,analyzes the possible limitations and prospects further work.