The Impact Of Chinese Monetary Policy Shocks On East Asia
Source: Bank of Finland
The authors 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. They 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 their 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. Their 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.