From the Middle Kingdom to the United Kingdom: Spillovers from China

10 Pages Posted: 5 Dec 2018

See all articles by Robert Gilhooly

Robert Gilhooly

Bank of England

Jenny Han

Bank of England

Simon Lloyd

Bank of England

Niamh Reynolds

Independent

David Young

Bank of England

Date Written: June 22, 2018

Abstract

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.

Suggested Citation

Gilhooly, Robert and Han, Jenny and Lloyd, Simon and Reynolds, Niamh and Young, David, From the Middle Kingdom to the United Kingdom: Spillovers from China (June 22, 2018). Bank of England Quarterly Bulletin 2018 Q2. Available at SSRN: https://ssrn.com/abstract=3293698

Robert Gilhooly (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Jenny Han

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Simon Lloyd

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

HOME PAGE: http://https://sites.google.com/view/splloyd

Niamh Reynolds

Independent

No Address Available

David Young

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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