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Echo over the Great Wall: Spillover Effects of QE Announcements on Chinese Yield Curve

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  • Mucai Lin
  • Linlin Niu

Abstract

This paper examines the spillover effects of announcements on quantitative easing (QE) conducted in developed economies on the Chinese Treasury yield curve. In spite of China’s firewall of cross-boarder capital control, we find that the US QE announcements move the Chinese yield curve immediately and significantly, through the channels of signaling and portfolio balancing. The results are robust across a variety of event analysis methods using reduced-form or structural models. Using the heteroskedasticity assumption for shock identification in an arbitrage-free term structure model, it was identified that the impact of US QE on Chinese yields was comparable, in size and significance, to China’s own monetary policy shocks.

Suggested Citation

  • Mucai Lin & Linlin Niu, 2019. "Echo over the Great Wall: Spillover Effects of QE Announcements on Chinese Yield Curve," Working Papers 2019-05-17, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, revised 14 Oct 2020.
    • Handle: RePEc:wyi:wpaper:002405
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    Cited by:

    1. Sifat, Imtiaz & Zarei, Alireza & Hosseini, Seyedmehdi & Bouri, Elie, 2022. "Interbank liquidity risk transmission to large emerging markets in crisis periods," International Review of Financial Analysis, Elsevier, vol. 82(C).
    2. Liu, Chunzi & Chen, Xiaoli, 2024. "Spillover effects of multidimensional information in Fed statements on China's bond market," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 712-741.

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    More about this item

    Keywords

    QE announcements; Spillover; Signaling Effects; Portfolio Balancing Effects; Yield Curve;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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