The Impact of Chinese Monetary Policy Shocks on East Asia

30 Pages Posted: 4 Jun 2008 Last revised: 9 Jul 2008

Tomasz J. Kozluk

Organization for Economic Co-Operation and Development (OECD)

Aaron N. Mehrotra

Bank for International Settlements (BIS)

Date Written: April 25, 2008

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

JEL Classification: E52, F42

Suggested Citation

Kozluk, Tomasz J. and Mehrotra, Aaron N., The Impact of Chinese Monetary Policy Shocks on East Asia (April 25, 2008). BOFIT Discussion Paper No. 5/2008. Available at SSRN: https://ssrn.com/abstract=1139806 or http://dx.doi.org/10.2139/ssrn.1139806

Tomasz J. Kozluk (Contact Author)

Organization for Economic Co-Operation and Development (OECD) ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Aaron N. Mehrotra

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

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