Monetary Policy Spillovers and China's Macro Policy Choice
As the world's second-largest economy,China has witnessed a significant enhancement in its comprehensive national strength and a steady rise in international influence.Moreover,China's monetary policy spillovers are becoming increasingly evident.Given China's deep integration into the global economy,these spillovers are also likely to have backward spillovers.When the world is impacted by China's macro policies,it will in turn affect China's macro economy.However,the literature on China's macro policy choice often overlooks China's monetary policy spillovers.How can we re-examine the impacts of China's macro policy from a global perspective by fully considering its monetary policy spillovers?Is there an optimal policy that maximizes domestic welfare while reducing negative spillovers?In this study,we first construct a dynamic stochastic general equilibrium model in an open economy,considering economies other than China as a whole and capturing the trade structure and financial market characteristics between China and the world.Using Chinese and global economic data,parameters in the model are calibrated or estimated using the Bayesian method.Then,counterfactual analysis is carried out to explore the influencing factors and heterogeneity of China's monetary policy spillovers.Second,we establish a welfare loss function to conduct welfare analysis and discuss the optimal macroeconomic policy under China's monetary policy spillovers.Finally,we investigate the impacts of the exchange rate system choice and the countercyclical macroprudential policy on China's monetary policy spillovers based on panel data on 50 countries and regions from 2010 to 2018.To overcome the endogeneity problem,we use the high-frequency change of asset prices in the financial market as an instrumental variable for China's monetary policy shock in a two-stage least squares regression.The results reveal that,based on the counterfactual analysis,the proportion of China's imports from abroad and friction in the domestic financial market significantly affect the spillover effects,while China's capital control has no significant impact on the spillover effects.According to the welfare analysis,a relatively stable exchange rate regime or a counter-cyclical macro-prudential policy can effectively improve the welfare of both China and the world.China's domestic economy contracts after an increase in interest rate,and a relatively stable exchange rate regime prevents further domestic economic contraction caused by fluctuations in RMB,thereby reducing the negative impacts on foreign economies.Counter-cyclical macro-prudential policy can restrain the rise of the external financing risk premium of enterprises and weaken the domestic financial accelerator effect,thus easing the contraction of the domestic economy and reducing the decline in foreign output.The empirical results indicate that China's relatively stable exchange rate regime and stricter loan-to-value ratio restrictions can effectively reduce global spillovers of China's monetary policy.The empirical results validate the findings of our theoretical model.Based on the above conclusions,this study makes the following policy recommendations.First,China should attach great importance to spillovers and backward spillovers,play its role as a responsible major country,and collaborate with other economies to promote international policy coordination.Second,given China's crucial position in global trade,policymakers should focus on China's trade linkages with the rest of the world,comprehensively investigating China's monetary policy spillovers.They should also consider the impacts of monetary policy implementation both domestically and abroad as much as possible,aiming to foster harmonious and mutually beneficial international relations.Third,China must adopt effective regulatory measures and institutional reforms to reduce financial market frictions;mitigate information asymmetry;and establish a healthier,more transparent,and stable financial market environment.Fourth,when formulating and implementing macro-prudential policy,supervisory authorities should pay attention to coordination with monetary policies,flexibly and appropriately apply policy tools based on the economic and financial environment,and formulate macro-prudential policies that meet practical needs.Fifth,China should continue to deepen the market-oriented reform of the exchange rate,resolutely guard against the risk of large fluctuations in the exchange rate,maintain the basic stability of the RMB exchange rate,and ensure stability in both the Chinese and global economies.
China's Monetary Policy SpilloversExchange Rate Regime SelectionMacroprudential SupervisionWelfare Loss
NETL
NSTL
万方数据
维普
