Monetary Policy Spillover Effects Of China On Monetary Policy Of Related Countries

In the open economy,monetary policy which aimed at domestic economy may have spillover effects on other economy.After the financial crisis in 2008,the prospect of world economy is uncertain.China,as the second economy in the world,timely change its economic strategy and promote Belt and Road Initiatives,which will fasten its trade and financial linkage with the world,and promote the RMB internationalization.In this thesis,we study the monetary policy spillover effects of China on monetary policy of related countries as the RMB internationalization accelerated.Based on high-frequency event study,this paper uses the data of countries in the Belt and Road Initiatives area to analyze the impact of China’s monetary policy on those countries’monetary policy intermediate targets.Taking monetary policy of United States and world economy variables into consideration,we respectively use two monetary instruments:one-year deposit rate and required deposit reserve ratio,and thus further comparative analysis of the effect of the different monetary instruments.The result shows that China’s monetary policy has a significant spillover effect on the exchange rates(negative)and interest rates(positive)of these countries.The finding suggests that spillover effects of China’s monetary policy on monetary policy of those economies are substantial,especially for the Asian region due to their tight financial and trade linkages with China.The degree and scale of China’s monetary policy spillover effects exhibit an enhanced trend after the implementation of the Belt and Road Initiatives.Furthermore,we use the data of trade and capital of the related countries in the Belt and Road Initiatives area to analyze the channel of China’s spillover effects.The results show that trade and financial linkage with China play an important role in the spillover.As the financial and trade linkage rise,the degree and scale of China’s monetary policy spillover effects exhibit an enhanced trend.Finally,the finding has important policy meaning.The monetary authority of China should take the spillover effects into consideration in some aspects when making monetary policy,which may reduce unnecessary confliction.For the implementation of Belt and Road Initiatives,directional monetary policy tools may be good choice.The results could also be useful for investors in the area.