The Spillover Effects Of The Federal Funds Rate Hike Cycles On China’s Output

After the subprime crisis,America had imposed four rounds of QE policies to stimulate its economic growth.As the economy gradually recovering,the US started to shrink its debt size at the beginning of 2014,and announced to exit the QE policies in October 2014.American economy recovered well at the end of 2015,and as a result,the Fed formally announced to start the interest rates hike cycle.Due to the strong economic strength and the dominant position of the dollar in the international monetary system,the Fed’s monetary policies have a significant impact on the global economy.As the largest emerging market in the global economy,China is the largest creditor of America,as well as the largest trading partner of America.With the link between China and the world economy increasingly close,international economic instability caused by the Fed’s raising interest rates will inevitably bring certain impact on China’s economy.China’s economic development is in a special stage,so the research on the spillover effects of the previous federal funds rate hike cycles on China’s output,is of great significance to improve our abilities to resist external shocks.The research method of this paper is combining theoretical analysis and empirical analysis.This paper firstly reviews the background of the previous federal funds rate hike cycle,and briefly analyzes the causes of American monetary policy affecting China’s economy,and then thoroughly discusses the transmission paths of its spillover effects on China’s monetary policy.On the basis of theoretical analysis,this paper build TVP-VAR model to analyze the spillover effects of the three federal funds rate hike cycles,so as to describe the time-varying effects.In order to make the analyses more comprehensive,this paper carries on empirical research from two dimensions further.From horizontal angle,dividing the transmission paths into monetary policy,international trade and capital flow paths.From vertical angle,dividing China into eastern,middle and western regions.The empirical results show that the spillover effects of the federal funds rate hike cycles on China’s output have obvious structural breaks.Specifically,the effect is non-significant in 1999,and to some extent it is positive in 2004,while it is significantly negative in 2015.From the perspective of transmission paths,the time-varying characteristics of the spillover effects mainly come from the impact of the federal funds rate on China’s monetary policies,international trades and capital flows.And the effect degrees of the monetary policy and capital flow paths are bigger than international trade path.From the perspective of regional differences,the effect degree of the Fed’s raising interest rates policies on eastern region is greater than that on middle and western regions.Finally,according to the empirical conclusions,this paper puts forward four suggestions,in order to have a certain reference value to the Chinese government’s policy making issues.