Spillover Effects Of China And U.S. Monetary Policy On Euro Zone's Economy

With the privilege status of U.S. dollar as a world currency and the deepening of RMB internationalization, the RMB will play a similar role as U.S. dollar in the international monetary systems. In order to push further internationalization of the RMB and make a win-win monetary policy, we need to investigate the spillovers for both China's and the U.S.'s monetary policies. Being the world's largest regional economy, it is of great practical significance for the Eurozone area to assess these spillovers.I first conduct comparative study on the differences of the China's and the U.S.'s monetary policies by MFD and Redux models. I find negative effects on the fluctuations in consumptions and real exchange rates in an active monetary policy environment and the influence is stronger for the U.S. than China according to the two models. By contrast, the effects are negative for the fluctuations on interest rates and output too. The MFD model shows that the U.S. still has a greater degree of influence, however, no conclusion can be drawn by but cannot make a judgment based on Redux model.I apply the SVAR model to monthly data spanning from 1999:1 to 2015:5 to compare with the spillovers of both China's and the U.S.'s monetary policies to the Eurozone economy. The empirical results shows that there is a long-run relationship between China's and the U.S.'s monetary policies and those macroeconomic indicators of Eurozone area. China's monetary policy Granger- causes core interest rates and IMF Commodity Price Index while the U.S.'s monetary policy Granger- causes CPI and real exchange rates. In the short run, CPI, the real exchange rates and industrial production index are mostly affected by the U.S.'s monetary policy and the China's monetary policy has stronger effects on the core interest rates than the U.S.There are four many implications of my findings for monetary policy:(1) fully liberalize and improve the setting mechanism of interest rates;(2) improve the setting mechanism of real exchange rates;(3) fully globalize the RMB;(4) “think win-win” on making monetary policy.