International Transmission of the People's Bank of China's Balance Sheet Expansion

21 Pages Posted: 10 Jul 2014

See all articles by Yiping Huang

Yiping Huang

Peking University, National School of Development

Peichu Xie

Peking University

Jiao Wang

Australian National University (ANU)

Date Written: July 2014

Abstract

The People's Bank of China's (PBoC) balance sheet expanded more dramatically than any of its major international counterparts during the past decade. The main contribution to this expansion was the rapid accumulation of the central bank's foreign assets, as a result of foreign exchange market intervention. In this paper, we examine the possible international transmission of this expansion by analyzing monthly data for China and 15 other countries over the period 2000–2012. Impulse response analysis based on vector autoregression modeling suggests that the PBoC's balance sheet expansion has greater impacts on developing than on developed countries. So far the influences appear to be dominated by “trade channels” instead of “financial channels,” possibly due to China's capital account controls. However, the impacts of the PBoC's balance sheet expansion on other countries' interest rates, exchange rates, and stock market prices could strengthen significantly in the coming years as China's economic scale grows and its capital account opens up.

Keywords: balance sheet expansion, China, international transmission, VAR model

JEL Classification: E44, E58, F41

Suggested Citation

Huang, Yiping and Xie, Peichu and Wang, Jiao, International Transmission of the People's Bank of China's Balance Sheet Expansion (July 2014). Asian Economic Policy Review, Vol. 9, Issue 2, pp. 276-296, 2014, Available at SSRN: https://ssrn.com/abstract=2464355 or http://dx.doi.org/10.1111/aepr.12071

Yiping Huang (Contact Author)

Peking University, National School of Development ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Peichu Xie

Peking University ( email )

Jiao Wang

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

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