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When the United States and the People’s Republic of China Sneeze: Monetary Policy Spillovers to Asian Economies

Author

Listed:
  • John Beirne

    (Asian Development Bank Institute)

  • Nuobu Renzhi

    (Capital University of Economics and Business)

  • Ulrich Volz

    (SOAS, University of London)

Abstract

This paper examines monetary policy spillovers from the US and the People’s Republic of China (PRC) to real and financial sectors in advanced and emerging Asian economies over the period 2000 to 2020. Using a structural vector autoregression (SVAR) approach, we find that Asian economies overall are more susceptible to spillovers to GDP, inflation, and the current account emanating from monetary policy shocks in the PRC than to those from the US. This is related to high inter-regional trade integration in Asia and is in line with previous research findings. However, while the prevailing literature has highlighted the dominant role of US monetary policy as a transmitter of shocks to global and Asian financial markets, we find more persistence in the response of advanced Asian interest rates to PRC monetary policy shocks. In addition, emerging Asian economies are found to be more susceptible to shocks emanating from the PRC in respect of equity markets and exchange rates. The rising synchronization of Asian financial markets in relation to the PRC as the financial account in the PRC has gradually opened as well as indirect effects via trade and regional value chains help to rationalize our findings.

Suggested Citation

  • John Beirne & Nuobu Renzhi & Ulrich Volz, 2023. "When the United States and the People’s Republic of China Sneeze: Monetary Policy Spillovers to Asian Economies," Open Economies Review, Springer, vol. 34(3), pages 519-540, July.
    • Handle: RePEc:kap:openec:v:34:y:2023:i:3:d:10.1007_s11079-022-09695-1
    DOI: 10.1007/s11079-022-09695-1
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    More about this item

    Keywords

    Monetary Policy; Global Financial Cycle; International Spillovers; US; People’s Republic of China;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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