A Study On The Spillover Effect Of U.S. Quantitative Easing Monetary Policy Shocks On China

Economic globalization increases the economic interdependence betweencountries. Financial crisis, just as the "domino", extends to the neighboring countries,eventually leading to a number of countries get into scrapes in a chain reaction. TheUnited States, European Union and other countries have introduced theunconventional quantitative easing monetary policy in order to inject liquidity to theeconomy system, aiming to help the government, financial institutions and the familyto repair the balance sheet, simulate domestic investment and consumption to improvethe export. Take U.S. for example, Federal Reserve has historically cut the federalfunds rate down to the target range from0to0.25%since November2008. From thenon, the rate has been maintained at close to zero. Since November25, Federal Reservehas begun to practice quantitative easing monetary policy to stimulate economicgrowth. Theoretically, this policy can increase inflationary pressure in China, push upinternational commodity price, results in an influx of international hot money whichcan cause economic bubble and other problems. At the same time, it’s necessary forour government to consider how to deal with the spillover effects of quantitativeeasing monetary policy of the United States and other large economies. All theseissues are worthy of attention.Therefore, the study on the spillover effect of U.S. quantitative easing monetarypolicy shocks on China is valuable and has policy significance. But so far, few ofliteratures have comprehensively researched it. Therefore, this paper will discuss it.Firstly, it sorts out the now extensive literatures from three directions: the study onmonetary policy spillovers, monetary policy cooperation based on the spillover effectsof monetary policy and monetary policy spillovers transmission channels. Secondly,the definition of monetary policy and other related concepts represents a clearexposition of quantitative easing monetary policy. It also discusses the evolution ofthe U.S. quantitative easing monetary policy by stages. Thirdly, it takes the transmission mechanism of monetary policy as the theoretical basis and the spillovereffects of monetary policy as the starting point to analyze the transmission channels ofmonetary policy spillover effects, considering that include trade output channel, theexchange rate channel, interest rate channel, other assets price channel, as well asinternational commodity price channel. Fourthly, it takes the U.S. quantitative easingmonetary policy shocks on China for example to study the spillover effects. It selectsthe relevant data from December2008to December2011as a sample, U.S. M2as aproxy variable of the U.S. monetary policy, and China’s real industrial added value,CPI net exports and international commodity imports as economic proxy variables ofChina. Then it establishes VAR model and carries out Co-integration Test, Grangercausality test, impulse response function and other quantitative analysis. Theconclusion shows that U.S. quantitative easing monetary policy has significantspillover effects on China, to some extent, has an adverse effect on China’s economicdevelopment. Finally, this paper makes feasible suggestions such as China shouldstabilize prices, pay close attention to cross-border capital flows by monitoring andwarning in time, takes a wide range of foreign exchange reserves management model,strengthens international cooperation and actively promotes the internationalizationprocess of RMB and other aspects.