IDEAS home Printed from https://ideas.repec.org/p/zbw/bofitp/bdp2008_005.html
   My bibliography  Save this paper

The impact of Chinese monetary policy shocks on East Asia

Author

Listed:
  • Kozluk, Tomasz
  • Mehrotra, Aaron

Abstract

We study the effects of Chinese monetary policy shocks on China s major trading partners in East Asia by estimating structural vector autoregressive (SVAR) models for six economies in the region. We find that a monetary expansion in Mainland China leads to an increase in real GDP (temporary) and the price level (permanent) in a number of economies in our sample, most notably in Hong Kong and the Philippines. The impact could result from intertemporal substitution present in a general equilibrium framework which allows for positive domestic impacts of foreign monetary expansions. Our results emphasize the growing importance of China for its neighboring economies and the significance of Chinese shocks for the design of monetary policy in Asian economies.

Suggested Citation

  • Kozluk, Tomasz & Mehrotra, Aaron, 2008. "The impact of Chinese monetary policy shocks on East Asia," BOFIT Discussion Papers 5/2008, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2008_005
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/212618/1/bofit-dp2008-005.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Mackowiak, Bartosz, 2006. "What does the Bank of Japan do to East Asia?," Journal of International Economics, Elsevier, vol. 70(1), pages 253-270, September.
    2. Svensson, Lars E O & van Wijnbergen, Sweder, 1989. "Excess Capacity, Monopolistic Competition, and International Transmission of Monetary Disturbances," Economic Journal, Royal Economic Society, vol. 99(397), pages 785-805, September.
    3. Christiano, Lawrence J. & Eichenbaum, Martin & Evans, Charles L., 1999. "Monetary policy shocks: What have we learned and to what end?," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 2, pages 65-148, Elsevier.
    4. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August.
    5. Eric M. Leeper & Christopher A. Sims & Tao Zha, 1996. "What Does Monetary Policy Do?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 1-78.
    6. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(2), pages 231-272, April.
    7. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    8. Geiger, Michael, 2006. "Monetary Policy in China (1994-2004): Targets, Instruments and their Effectiveness," W.E.P. - Würzburg Economic Papers 68, University of Würzburg, Department of Economics.
    9. Yu, Qiao, 1997. "Economic Fluctuation, Macro Control, and Monetary Policy in the Transitional Chinese Economy," Journal of Comparative Economics, Elsevier, vol. 25(2), pages 180-195, October.
    10. Garcia-Herrero, Alicia & Koivu, Tuuli, 2007. "Can the chinese trade surplus be reduced through exchange rate policy?," BOFIT Discussion Papers 6/2007, Bank of Finland Institute for Emerging Economies (BOFIT).
    11. Mehrotra, Aaron N., 2007. "Exchange and interest rate channels during a deflationary era--Evidence from Japan, Hong Kong and China," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 188-210, March.
    12. Aaron Mehrotra, 2008. "Demand for Money in Transition: Evidence from China’s Disinflation," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 14(1), pages 36-47, February.
    13. Dickinson, David & Liu, Jia, 2007. "The real effects of monetary policy in China: An empirical analysis," China Economic Review, Elsevier, vol. 18(1), pages 87-111.
    14. Garcia-Herrero, Alicia & Koivu, Tuuli, 2007. "Can the chinese trade surplus be reduced through exchange rate policy?," BOFIT Discussion Papers 6/2007, Bank of Finland, Institute for Economies in Transition.
    15. repec:zbw:bofitp:2007_006 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:zbw:bofitp:2008_005 is not listed on IDEAS
    2. Kozluk, Tomasz & Mehrotra, Aaron, 2008. "The impact of Chinese monetary policy shocks on East Asia," BOFIT Discussion Papers 5/2008, Bank of Finland, Institute for Economies in Transition.
    3. Tomasz Koluk & Aaron Mehrotra, 2009. "The impact of Chinese monetary policy shocks on East and South‐East Asia1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(1), pages 121-145, January.
    4. Kronick, Jeremy, 2014. "Monetary Policy Shocks from the EU and US: Implications for Sub-Saharan Africa," MPRA Paper 59416, University Library of Munich, Germany.
    5. Vitek, Francis, 2006. "Measuring the Stance of Monetary Policy in a Small Open Economy: A Dynamic Stochastic General Equilibrium Approach," MPRA Paper 802, University Library of Munich, Germany.
    6. Summers, Peter M., 2001. "Forecasting Australia's economic performance during the Asian crisis," International Journal of Forecasting, Elsevier, vol. 17(3), pages 499-515.
    7. Schabert, Andreas, 2005. "Identifying monetary policy shocks with changes in open market operations," European Economic Review, Elsevier, vol. 49(3), pages 561-577, April.
    8. Vitek, Francis, 2006. "Monetary Policy Analysis in a Small Open Economy: A Dynamic Stochastic General Equilibrium Approach," MPRA Paper 800, University Library of Munich, Germany.
    9. Waggoner, Daniel F. & Zha, Tao, 2003. "A Gibbs sampler for structural vector autoregressions," Journal of Economic Dynamics and Control, Elsevier, vol. 28(2), pages 349-366, November.
    10. Francis Vitek, 2005. "An Unobserved Components Model of the Monetary Transmission Mechanism in a Small Open Economy," Macroeconomics 0512019, University Library of Munich, Germany, revised 06 Feb 2006.
    11. Waggoner, Daniel F. & Zha, Tao, 2003. "Likelihood preserving normalization in multiple equation models," Journal of Econometrics, Elsevier, vol. 114(2), pages 329-347, June.
    12. Michael Paetz, 2007. "Robust Control and Persistence in the New Keynesian Economy," Quantitative Macroeconomics Working Papers 20711, Hamburg University, Department of Economics.
    13. Jean-Pierre Allegret & Cécile Couharde & Cyriac Guillaumin, 2012. "The Impact of External Shocks in East Asia: Lessons from a Structural VAR Model with Block Exogeneity," International Economics, CEPII research center, issue 132, pages 35-89.
    14. Leeper, Eric M. & Zha, Tao, 2003. "Modest policy interventions," Journal of Monetary Economics, Elsevier, vol. 50(8), pages 1673-1700, November.
    15. Zenón Quispe, 2000. "Monetary Policy in a Dollarized Economy: the Case of Peru," Money Affairs, CEMLA, vol. 0(2), pages 167-206, July-Dece.
    16. Mackowiak, Bartosz, 2006. "What does the Bank of Japan do to East Asia?," Journal of International Economics, Elsevier, vol. 70(1), pages 253-270, September.
    17. Lahura, Erick, 2012. "Measuring the Effects of Monetary Policy Using Market Expectations," Working Papers 2012-005, Banco Central de Reserva del Perú.
    18. Marika Karanassou & Hector Sala & Dennis J. Snower, 2010. "Phillips Curves And Unemployment Dynamics: A Critique And A Holistic Perspective," Journal of Economic Surveys, Wiley Blackwell, vol. 24(1), pages 1-51, February.
    19. Henzel, Steffen & Hülsewig, Oliver & Mayer, Eric & Wollmershäuser, Timo, 2009. "The price puzzle revisited: Can the cost channel explain a rise in inflation after a monetary policy shock?," Journal of Macroeconomics, Elsevier, vol. 31(2), pages 268-289, June.
    20. Vespignani, Joaquin L. & Ratti, Ronald A., 2013. "Chinese Monetary Expansion and the US Economy," Working Papers 16874, University of Tasmania, Tasmanian School of Business and Economics, revised 05 Aug 2013.
    21. Galí, Jordi, 2002. "New Perspectives on Monetary Policy, Inflation and the Business Cycle," CEPR Discussion Papers 3210, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    monetary policy shocks; Asian production chain; SVAR; East Asia; China;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:bofitp:bdp2008_005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/bofitfi.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.