Empirical Analysis Of The U.S. Quantitative Easing Monetary Policy Spillover Effects On China Economy

From November25.2008, the Federal Reserve launched two quantitative easing policy, which behave as releasing innovative financial products to increase market liquidity. Meanwhile. China’s macroeconomic variables continue to fluctuate, mainly for the economic overheating and inflation expansion. This paper mainly studies the relationship of the United States easing monetary policy and the China’s macroeconomic variables, such as China’s price, output, interest rates, monetary supply and the bilateral exchange rate between China and the United States. The purpose of the study is to examine the content of the relationship and to answer the discussion of the imported inflation in academics and society.This paper build a structural VAR with block exogeneity, giving the constraints from the money market, foreign exchange market and commodity market. Then it analyzes the impulse response map and the variance decomposition results of the Chinese macroeconomic variables on U.S. monetary policy indicators. At the last, this paper compares the difference of the compacts before and after the implementation of the easing monetary policy.Impulse response results show that after the easing monetary policy, response of the output to U.S. monetary policy variables are significantly improved, both in channels of financial markets and channels of international trade, and the improved range is more than five times. Besides, the degree of responses of the Chinese price, money supply, as well as the China-US bilateral exchange rate changes little. And response of the Chinese interest rate on the U.S. money supply and federal funds rate is different in different transmission channels. The magnitude of the change in international transmission channel is much lager than that in the financial markets transmission channels. Overall, responses of all of the Chinese macroeconomic variables on the U.S. monetary policy indicators changes, but the changes in the degree and direction vary.The variance decomposition results show that, after the U.S. easing monetary policy, the rate of U.S. easing monetary policy’s contribution is larger. Specifically, after the easing monetary policy, the contribution rate of the three monetary policy indicators to output volatility has significantly increased, and it changes more in the financial market transmission channels than in the international trade transmission channels. Besides, the contribution rate of the three U.S. monetary policy indicators to the Chinese price fluctuations if also increased significantly. Moreover, contribution of output to the price fluctuations in China is high before the year of2007, some period can reach more than30%. However, the rate decline sharply after the easing monetary policy. Accordingly, the contribution of the U.S. monetary policy indicators to the Chinese price increased significantly. To the Chinese interest rates and money supply, rate of the contribution of U.S. monetary policy indicators to their volatility also increased by several times. And the variable’s own contribution reduces. As for the China-US bilateral exchange rate, changes of the contribution rate of the easing monetary policy indicators before and after the U.S. policy are relatively small.In addition, considering all the circumstances, contribution rate of U.S. in the financial markets transmission channels is larger than that in the international trade transmission channels. And impacts on Chinese output are more significant than that on Chinese price. As for the Chinese interest rates, impacts of U.S. easing monetary policy indicators in financial markets transmission channels is weaker than that in international trade transmission channels. However, differences of the impacts on Chinese money supply and the China-US bilateral exchange rate in different channels is not significant.