Global Spillovers of a China Hard Landing

42 Pages Posted: 22 Oct 2019 Last revised: 31 Oct 2019

See all articles by Shaghil Ahmed

Shaghil Ahmed

Board of Governors of the Federal Reserve System

Ricardo Correa

Board of Governors of the Federal Reserve System

Daniel A. Dias

Board of Governors of the Federal Reserve System

Nils Gornemann

Board of Governors of the Federal Reserve System

Jasper Hoek

Board of Governors of the Federal Reserve System

Anil Jain

Board of Governors of the Federal Reserve System

Edith Liu

Board of Governors of the Federal Reserve System

Anna Wong

Board of Governors of the Federal Reserve System

Date Written: 2019-10-18

Abstract

China's economy has become larger and more interconnected with the rest of the world, thus raising the possibility that acute financial stress in China may lead to global financial instability. This paper analyzes the potential spillovers of such an event to the rest of the world with three methodologies: a VAR, an event study, and a DSGE model. We find the sentiment channel to be the primary spillover channel to the United States, affecting global risk aversion and asset prices such as equity prices and the dollar, in addition to modest real effects through the trade channel. In comparison, the combined financial and real effects to other advanced and emerging market economies, especially net commodity exporters, would be more consequential due to their larger direct exposure to China and more limited scope of monetary policy to respond to shocks.

Keywords: China, Financial crisis, Spillovers, Financial system

JEL Classification: F30, G28, E60

Suggested Citation

Ahmed, Shaghil and Correa, Ricardo and Dias, Daniel A. and Gornemann, Nils and Hoek, Jasper and Jain, Anil and Liu, Edith and Wong, Anna, Global Spillovers of a China Hard Landing (2019-10-18). FRB International Finance Discussion Paper No. 1260. Available at SSRN: https://ssrn.com/abstract=3473600 or http://dx.doi.org/10.17016/IFDP.2019.1260

Shaghil Ahmed (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC
United States

Ricardo Correa

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Daniel A. Dias

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Nils Gornemann

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Jasper Hoek

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Anil Jain

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Edith Liu

Board of Governors of the Federal Reserve System

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Anna Wong

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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