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      Three channels of monetary policy international transmission: Identifying spillover effects from the US to China

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      Embargo Lift Date: 2025-05-02
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      Author(s)
      Zhang, M.
      Şensoy, Ahmet
      Cheng, F.
      Zhao, X.
      Date
      2022-05-02
      Source Title
      Research in International Business and Finance
      Print ISSN
      0275-5319
      Electronic ISSN
      1878-3384
      Publisher
      Elsevier Inc.
      Volume
      61
      Pages
      101670- 1 - 101670- 18
      Language
      English
      Type
      Article
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      Abstract
      We identify and compare three channels through which the adjustment of US monetary policy spills over into China, including trade, exchange rate, and financial channels. A proxy vector autoregression model, with a high-frequency identification strategy, is applied to measure the causal effect of monetary policy shocks to the fundamentals of China’s economy. The analysis reveals that tightness in US monetary policy increases inflation in China by 0.2% and drives down output by 1%. We also find that the spillover effect from the US to China is immediate and significant through each of the three channels. Furthermore, the financial channel is significant in terms of its effect on interest rate expectations and long-term financing premia for Chinese companies. Our results support the notion of the financial channel as a key transmission mechanism for cross-country spillovers of monetary policy, which should be of much interest to participants in financial markets.
      Keywords
      US monetary policy
      China
      Financial transmission channel
      Spillovers
      Proxy VAR model
      Permalink
      http://hdl.handle.net/11693/111359
      Published Version (Please cite this version)
      https://doi.org/10.1016/j.ribaf.2022.101670
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      • Department of Management 639
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