Monetary Policy Transmission in Systemically Important Economies and China’s Impact

49 Pages Posted: 18 Oct 2018

See all articles by Domenico Lombardi

Domenico Lombardi

CIGI

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs

Xiangyou Xie

Agricultural Bank of China, CIGI and University of Waterloo

Date Written: October 16, 2018

Abstract

This paper examines the monetary policy transmission mechanism in four systemically important economies. The impact of monetary policy is found to be broadly comparable for China, the US, the Eurozone, and Japan. Identifying a role for the financial sector is essential to unpacking various channels through which monetary policy operates. Global factors play a significant role and their impact is strongest for China and weakest for Japan. China’s impact is significant with the Eurozone displaying the most interdependence and Japan the least. Time-varying VARs suggest that contrasts in the responses to monetary policy shocks persist highlighting some of the remaining differences in the transmission mechanism. Finally, there is no apparent structural change in the estimated relationships around the time when the Fed intervened after 2008. It is conjectured that Quantitative Easing may well have prevented such a break.

Keywords: monetary policy transmission, systemically important economies, QE, Factor VAR, time-varying Factor VAR

JEL Classification: E63, E52, E58, E32, E31

Suggested Citation

Lombardi, Domenico and Siklos, Pierre L. and Xie, Xiangyou, Monetary Policy Transmission in Systemically Important Economies and China’s Impact (October 16, 2018). CAMA Working Paper No. 50/2018. Available at SSRN: https://ssrn.com/abstract=3267039 or http://dx.doi.org/10.2139/ssrn.3267039

Domenico Lombardi

CIGI ( email )

67 Erb Street West
Waterloo, Ontario N2L 6C2
Canada

HOME PAGE: http://www.domenicolombardi.org

Pierre L. Siklos (Contact Author)

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

Xiangyou Xie

Agricultural Bank of China, CIGI and University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

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