An Empirical Study Of U.S. Monetary Policy Impact On China’s Inflation

The change of dollar liquidity did a good interpretation for the adjustment of U.S. monetary policy during the process of U.S. subprime mortgage crisis outbreak, spread and governance. When it comes to post-crisis era, the Fed announced it would quit the monetary policy of "quantitative easing" step by step, however, keep on releasing the dollar liquidity, which leads to excessive global liquidity and put imported inflationary pressure on the emerging markets represented by our country through channels of cost-push, capital input and monetary expansion etc. Therefore, the Chinese government should respond with relevant regulatory policy to resist imported inflation caused by external liquidity shocks. On the other hand, with the increasing degree of opening up and external dependence, domestic inflation is increasingly affected by external shock. Therefore, Analysis the influence of U.S. monetary policy change on transmission channels and influence to Chinese imported inflation has become a major issue to explore. This paper studies the influence of U.S. monetary policy change on Chinese imported inflation by combining theoretical and empirical analysis.Firstly, this paper elaborates on the basic theories, and then analysis of imported inflation theories based on M-F-D models, and the Transmission Channel of imported inflation by stylized facts, namely, channels of cost-push, capital input and monetary expansion, to lay a theoretical foundation for the following empirical analysis. Secondly, empirical analysis is divided into two parts, the first part from a single perspective, analyzing the influence of US monetary policy change on the Chinese imported inflation by building different channels of SVAR model. The second part from multiple perspectives, analyzing the impact on multiple channels by single FAVAR model.To sum up, first, based on the analysis of SVAR-model, the change of U.S. monetary policy significantly impacts on Chinese imported inflation through the channels of cost-push, capital input and monetary expansion, but the influence of various channels is different. Second, based on the analysis of FAVAR model, there is big difference between the influences of the various U.S. monetary policy indicators on Chinese imported inflation. Moreover, the change of U.S. monetary policy impacts on Chinese imported inflation through various channels is also different to some extent. Therefore, under the current international economic situation, to address the problem of imported inflation timely and effectively, China needs to pay more attention to the change of U.S. monetary policy, and consider more factors during the process of setting monetary policy.