The Effects Of External Financial Stress Shocks On Macroeconomic Of China

The global economic and fi nancial crisis of 2007-2009 triggered by the US subprime mortgage crisis had a wi despread impact on c ountries all over the world. Because of the low degr ee of financial openness and t he rescue action taken by the gover nment, the crisis hasn’t caused many effects in China. In the f uture financial liberalization is inevitable. During in the process of the fina ncial and e conomic market re form, China should be particularly vigilant of potential impact of the f inancial crisis f rom abroad. Financial crisis is a zero or one binary variable. But the gray area between the two states, it is hard to describe. The pr oposing of the concept of financial stress shakes off t he restraint of study on crisis. Financial st ress index measures the extent of the financial system to withstand the pressure changes, Financial stress index is a c ontinuous variable, which can easil y observe a moment of state. It can be used to monitor the status of the w orld’s financial stress, and early w arning of financial crises. So, analyze and quanti fy the impact has important practical significance of t he impact of China’s macroeconomic.In view of this, this paper constructed a financial stress index to measure the 21 country’s fi nancial pressure situation. We find that there is a strong linkage effects among the countries, an d it will become stronger during the financial crisis. A country has higher financial openness, stronger linkage effects appears bet ween the country an d others. But this linkage effects between China and other countries is weak. Then paper inve stigates the transmission of f inancial stress in a theoretical and empirical way. We fin d that compare to the trade linkages, th e financial linkages are more important to the transm ission of f inancial stress. Because of the c omplexity of transmission of the f inancial stress sh ock, it appears to be one-side if we explain it from some aspects. So we finally investigate the impact of financial stress on Chinese economic in a GVA R model, which use the fina ncial linkages as weight matrix accor ding to the empirical analysis before. The model includes financial stress index, the index of industrial pr oduction, CPI and interest rates as endogenous variable. We use the generaliz ed impulse response functions a nd generalized forecast error va riance to quanti fy the impact. We find that 1) fi nancial stress shock have a significant influence on China’s financial sector, but not sign ificant on China’s real economy. 2) Compare to the shocks from Brazil and Japan, the shocks from US and Britain have more significant influence on Chinese economic and financial.