| Since this century,the nonlinear and time-varying characteristics of global liquidity have become increasingly apparent.Major economies around the world face liquidity fluctuations.From the global economic crisis of 2008 and the subsequent European sovereign debt crisis,to quantitative easing in the US until the withdrawal of QE,it was a form of global liquidity shock.The liquidity shock caused by the transformation of the global liquidity condition is accompanied by the change of economic cycle,which is the profound reason for the turmoil of the international financial market in this century.With the development of economic globalization and financial liberalization,the world’s major economies have been profoundly affected by the global liquidity shock.The foreign exchange market,money market and capital market also become imbalanced because of its influence.In the face of the global liquidity shock,how to adjust the domestic market represented by the stock market and promote the coordination and cooperation among various policies will be an urgent problem to be solved.In order to solve these problems mentioned above,the article makes following research.Based on the monthly data from 1999 to 2016,this paper constructs a Markov-Switching Vector Auto Regression model(MS-VAR)which can describe the impact of global liquidity with nonlinear and time-varying characteristics on China’s stock market volatility in different regimes.This paper also captures the transmission channel of global liquidity in order to provide policy suggestions for managing liquidity more effectively.Firstly,the time-varying state of global liquidity levels is divided into three types which include the stable state with smaller fluctuations,the active state with greater volatility and the mixed fluctuation state between the two.The duration of second regime was longest of 9.92 months,and most of the sample points observed were found in it.Secondly,the probability of transfer among different regimes is asymmetric.The second regime has better stability than that of regime 1and 3,and the probability of transferring to regime 1 and 3 is relatively low;Regime 1is easy to transfer directly into regime 3 instead of regime 2,and the regime 3 is easy to transfer into the mixed state of the regime 2 for buffering and transferring smoothly.Thirdly,the results show that estimated parameters are dependent on variousregimes which reflect the nonlinear,time-varying and complex relationship among variables.In the view of regimes,in the state of the first regime,global liquidity has more direct influence on the volatility of stock market;as for the second regime,capital channel has played a major role;in the state of the third regime,global liquidity is transferred by capital channel and trade channel as well as its direct effects on China’s stock market to affect the volatility of the stock market.Above all,there are three main channels for global liquidity shock to pass into China’s stock market including capital channel,trade channel and interest rate channel.And capital channel and trade channel play the leading role while interest rate channel is in the non-dominant position to transmit or amplify the impact of global liquidity shock because of capital control in the short term.Therefore,it’s still an essential way to handle liquidity shock by capital control in the short term.But in the long run,the government should focus on promoting reform of the exchange rate regime and the process of RMB internationalization actively and continually and ensuring the independence and flexibility of fiscal policy and monetary policy.At the same time,It’s also essential to coordinate the relationship among improving the international status of RMB,the liberalization of capital controls and flexible exchange rate regime. |
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