The US Monetary Policy Spillover Effects On China's Current Account

The balance of payments is a direct reflection of a country's participation in international economic activity, economic exchanges between nations would inevitably lead to the change of the international balance of payments. With the formation of global economic integration, the forms of trade increase and capital exchanges become more frequent, effects of changes in The balance of payments resulting on a country's economy become more evident. As an international currency, US dollar acts as pricing currency and a medium of exchange in international trade. The adjustment of American monetary policy has a direct impact on the value of the dollar and its circulation in the world. It can't avoid influencing the international trade. Since twenty-first Century, the U.S. monetary policy has been adjusted frequently due to the economic fluctuations of the United States, resulting in a direct result of the economic impact of other countries. As the most important part of the balance of payments, the impact of the current account should not be ignored. This paper studies the spillover effects of U.S. monetary policy on China's current account, and focusing on the change of the time varying effects. Finally, put forward the concrete and feasible policy suggestions for our country according to the research results.On the basis of the Quantity Theory of Money, interest rate parity theory and M-F-D model, this article discusses the international pathway of US monetary policy. And selects TVP-VAR model as the empirical model, establish a five- variable TVP-VAR model contains China's current account balance, China's fiscal balance of payments, the US federal funds rate, China's interest rates and the real effective exchange rate index. and thereby obtain the impulse response function between variables.The empirical results show that the increase of US federal funds rate has a positive impact on the China's current account balance, and the impact of strength gradually increased over time. In the pathway, the exchange rate channel showed a more prominent role than the interest rate channel. Besides, China's fiscal policy also showed the impact on China's current account balance. and this impact has a greater volatility around the year 2008. Indicates that faced the impact of foreign policy, China's current account balance has a more complicated reaction in the unstable economic.