BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 5/2008:
The Impact of Chinese Monetary Policy Shocks on East Asia
Aaron Mehrotra ()
and Tomasz Kozluk
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.
Keywords: monetary policy shocks; Asian production chain; SVAR; East Asia; China; (follow links to similar papers)
JEL-Codes: E52; F42; (follow links to similar papers)
30 pages, June 3, 2008
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