From the Middle Kingdom to the United Kingdom: Spillovers from China
10 Pages Posted: 5 Dec 2018
Date Written: June 22, 2018
China’s credit boom is one of the largest and longest running ever recorded. Similar credit booms have typically preceded crises in other countries.
This article provides an updated assessment of how a shock to the Chinese economy could affect the UK economy via standard transmission channels - such as trade and financial linkages. It then considers how amplification mechanisms, which could plausibly operate in the event of a particularly large shock, could further increase the impact on the UK from an economic crisis within China.
We find that the effects via standard channels from a modest fall in Chinese GDP are larger than our previous estimates, primarily due to China’s increasing role in global trade. A more extreme shock which triggers amplification mechanisms - such as a larger financial market reaction - could potentially double the effects from the standard channels alone.
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