Journal of Applied Finance & Banking

The Spillover Effects of U.S. Monetary Policy on the Chinese Stock Market

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• Abstract

   

  I study a vector autoregression model to estimate the effects of U.S. Quantitative Easing Monetary Policy on the Chinese stock market. I find that the increase of U.S. money supply would result in a significant increase in the Chinese stock market return but the influence is insignificant in the long run. Then I examine three potential mechanisms through which U.S. monetary policy transmits to China: short-term capital flow, monetary policy dependence and stock co-movement. Finally, using the variance decomposition method, I find that the monetary policy dependence mechanism turns to be the most important one among all the three mechanisms and the short-term capital flow mechanism plays the least important role.

   

  JEL classification numbers: C3, E4, E5, F3

  Keywords: International policy spillover, U.S. monetary policy, Chinese stock market