Research On China’s Spillback Effect On The Exit Of Quantitative Easing Monetary Policy In Developed Countries

The withdrawal of quantitative easing monetary policy in developed countries has brought market volatility and financial instability to China.Under the background of financial integration,China’s negative impact will also affect developed countries through cross-asset and cross-market approaches,called spillback effect.Developed economies and some international organizations have expressed varying degrees of concern about the regional or global spillover effects of emerging market countries represented by China,and stated that they will have to consider their spillback effects when formulating policies.The research in this paper can supplement the theoretical system of transnational spillover effects of monetary policy,which is conducive to the effective formulation of China’s monetary policy and the development of international monetary policy coordination.This paper uses the combination of theoretical analysis and empirical test to study China’s spillback effect on the exit of quantitative easing monetary policy in developed countries.First of all,the theoretical framework of quantitative easing monetary policy in developed countries,especially the exiting theoretical framework,is systematically sorted out to clarify the three levels of this unconventional monetary policy and to determine the variables to be analyzed later.Secondly,the short-term two-state open economy model is constructed to theoretically derive the existence of the spillback effect and the corresponding channels.Then,it analyzes the status quo of China’s spillback effect to the exit of quantitative easing monetary policy.Then,selecting the three developed economies containing the United States,the European Union,and Japan as research objects,the SVAR model is constructed to empirically test China’s spillback effect on exiting intermediary targets of quantitative easing monetary policy;further,considering the economies’ mutual spillover effect,using the trade matrix with certain time-varying characteristics to construct the GVAR model,empirically test China’s spillback effect on exiting final goal of quantitative easing policy.Finally,based on the results of empirical analysis,it provides policy recommendations for China’s monetary policy formulation and participation in international coordination.By constructing the short-term two-state open economy model,it is found that the tightening of China’s monetary policy,the reduction of foreign exchange reserves,and the depreciation of exchange rates may lead to an increase in interest rates in developed countries,which in turn affects the recovery process of developed countries and delays the exit process of quantitative easing monetary policy.The empirical results of the SVAR model show that China’s spillback effect on the exit of quantitative easing monetary policy exists,and the foreign exchange reserve channel is the most important channel.The empirical results of the GVAR model show that China’s tight monetary policy will reduce the output of the United States and the European Union,and generate deflationary pressure on them,which will have a certain restrictive effect on the withdrawal of quantitative easing policy for the United States and the European Union;China’s tightening monetary policy will reduce Japan’s output and have a slight uplifting effect on its inflation,but the effect of reducing output is greater than the effect of uplifting inflation.Therefore,China’s tight monetary policy will also delay the withdrawal process of Japan’s quantitative easing monetary policy.The results show that with the increasing economic strength of China and the increasingly close economic and trade ties between the countries in the world,China has already had the ability to actively check and balance the monetary policy of developed countries.The negative spillover effect of the withdrawal of quantitative easing monetary policy in developed countries on China can be reduced by flexibly adjusting the scale and structure of foreign exchange reserves,continuously advancing interest rate marketization reform,improving the exchange rate marketization formation mechanism,and strengthening international coordination of monetary policy.