The Spillover Effects Of Chinese Money Market And The Determinants

It is known to all that the United States of America is the traditional largest financial country,and every time its central bank-the Federal Reserve is producing very huge shocks to the global financial market when it adjusts the monetary policy.However,things were gradually becoming quite different when China became the second largest economy of the world.With the increasing magnitude of Chinese financial market openness,Chinese monetary market interest rate should not simply become the follower of USA;UK or other well-developed economies’ monetary market interest rate.It is very possible that Chinese monetary market interest rate will widen its influence to the world economy.In current studies,we find out that the most of the work pay more attention to the US monetary policy and focus on the effect of the US monetary policy to the rest of the world or major economies.But very few scholar studies on the implication of Chinese monetary market interest rate or Chinese monetary policy,which leaves this part of research vacant.Base on the previous research,this thesis try to explore the implication of Chinese monetary market interest rate so as to make up for gaps in this area.The purpose of this paper is quantifying the spillover effects of Chinese monetary market interest rate as well as studies the influence factors that cause the difference in spillover index between countries by using mathematical and econometric models.Further,our study will finally provide some proper suggestions or guidance on making appropriate monetary policy for People’s Bank of China.In this thesis,the major study can be divided into two parts.In the first part,by using vector autoregressive and generalized variance decomposition analysis,we build up the theoretical spillover model and then we apply the money market interest rate data of China and 16 other countries,we can get the spillover index between different countries and it could help to more accurately and intuitionally compare the magnitude of the spillover effect between countries.To further study the dynamic changes of the spillover effect through time,this thesis apply the rolling window method and get the dynamic spillover index of Chinese monetary market interest rate to the rest 16 countries.We can easily find out the obvious of Chinese monetary market interest rate implication to different countries.In the second part,we mainly study the possible reason that leads to difference responses of Chinese monetary market interest rate spillover effects on different countries.This thesis adopts Chinese monetary policy adjusting factor,financial market openness factor,international trade integration factor,debt-to-GDP ratio,FDI-to-GDP ratio,manufacturing share,and unemployment factor to be the independent variables,and spillover index as dependent variable.We use the panel data regression to investigate the influential factor.The following are the major findings of this thesis:1)the general spillover index of Chinese monetary market interest rate is only between 5 percents to 10 percents,and relative lower than US monetary policy;2)the specific spillover index of Chinese monetary market interest rate to different country is quite different;3)Chinese monetary policy adjusting factor,financial market openness factor and international trade integration factor could be the possible reasons explaining difference responses of Chinese monetary policy spillover effects on different countries.