A Study On The Spillover Effect Of US Monetary Policy On China’s Stock Market

Against the backdrop of accelerating global economic globalization,economic cooperation between various countries and regions is becoming increasingly active,and the United States’ position in the global economic system is also becoming increasingly important.Monetary policy,as a tool for a country to regulate its domestic macroeconomic,has become increasingly intertwined with global economic integration,especially among major countries.The spillover effect of the US monetary policy on other countries is particularly significant.China is the world’s largest developing country and the second largest economy.While its economy is open,its economic activities are increasingly influenced by the monetary policies of other countries.In 2007,the subprime crisis broke out in the United States,and in 2008,the US government fully utilized the flexibility of monetary policy by lowering benchmark interest rates and discount rates to historical lows,forcing the United States to adopt a "quantitative easing" monetary policy.In 2015,in order to prevent the foam from bursting again and normalize the monetary policy,the United States withdrew from quantitative easing and raised interest rates.In 2020,the sudden COVID-19 swept the world.In response to the "Black Swan" incident,the United States implemented a large-scale quantitative easing policy.Although the U.S.economy has recovered for a short time,it is foreseeable that the world economy will be affected by this.The Federal Reserve’s aggressive release will affect the global asset allocation,and in the long run,there are also hidden dangers.In recent years,China has gradually expanded its openness to the outside world,and China has shown an increasingly sensitive trend towards the US monetary policy.It is inevitable that China will face spillover effects brought about by changes in US monetary policy.The stock market is known as the "barometer" of the national economy and is an important part of the macro economy.Studying the impact of US monetary policy on China’s stock market and assessing its effectiveness in transmitting channels is of great significance for building a new open economy and improving China’s stock market.This article mainly focuses on three aspects: 1.Is the impact of US monetary policy on the Chinese stock market positive or negative.2.How long will the impact of US monetary policy continue to affect the Chinese stock market.3.Which transmission channel of US monetary policy has a more profound impact on the Chinese stock market.This article first reviews theoretical literature on financial market linkage and spillover effects of monetary policy.At the same time,the United States is the world’s largest economy,and the spillover effects of its monetary policy are the focus of our research.This article also reviews empirical research on the transmission channels of its spillover effects,and elaborates on the evolution process of the United States from traditional monetary policy to unconventional monetary policy,Subsequently,the theoretical basis of the transmission mechanism of monetary policy was organized and explored.After clarifying the theoretical part,this paper constructs a six variable TVP-SV-VAR model of US CPI,Sino US interest margin,Sino US exchange rate,US trade balance,US debt and Shanghai Stock Exchange Index.Using the monthly data from January 2007 to December 2021,this paper uses empirical methods to explore the time-varying characteristics of the spillover effect of US monetary policy on China’s stock market.Using the above empirical analysis methods,this paper draws five conclusions: 1.The change of the US money supply has the greatest impact on China’s stock market,and has led to the decline of China’s stock market prices in four special periods.2.The change of US monetary policy has little impact on the price of China’s stock market through the spread channel,and it is time-varying.3.Changes in U.S.monetary policy can significantly affect the price of China’s stock market through exchange rate channels,and the short-term and long-term impact directions are different.4.The change of US monetary policy can quickly affect the price of China’s stock market through US trade channels,but the duration is relatively short.5.The change of US monetary policy affects China’s stock market prices through debt channels in the short term,but the long-term impact is weak.Finally,based on the impact of variable fluctuations and the interaction between variables on China’s stock market,this article provides corresponding policy recommendations based on different channels,combined with the current international economic situation and China’s macroeconomic characteristics,such as enhancing the autonomy of China’s monetary policy,promoting interest rate marketization reform,coordinating and grasping the degree of exchange rate marketization and relaxing capital market control,and continuously optimizing the foreign trade structure,To improve the quality of trade,reduce the degree of external dependence of listed companies,and improve the stock market,in order to alleviate the impact of the uncertainty of the Federal Reserve’s monetary policy on China’s stock market,so that China can more effectively avoid related risks.