|
|
|
| Fed Policy Changes, International Capital Flows, and Macroeconomic Fluctuations |
| HAO Dapeng, WANG Bo, LI Li
|
Hanqing Advanced Institute of Economics and Finance, Renmin University of China;
School of Finance, Nankai University;
International School of Business & Finance,Sun Yat-Sen University |
|
|
|
Abstract The Fed entered the rate hike cycle in 2015, which had a huge impact on international financial markets, commodity markets and emerging countries, but it gradually withdrew its quantitative easing policy as the U.S. economy recovered. Geopolitical risks have increased in recent years, friction in Sino-U.S. trade has intensified, the international economic situation has continued to deteriorate, and China faces further external uncertainties. Now, in 2020, as the COVID-19 pandemic continues, the Fed has restarted its quantitative easing and the risk and uncertainty of monetary policies have increased significantly. According to the latest IMF forecast, the global economy will shrink by 3% in 2020. Thus, the uncertainty of prospects for global growth and the volatility of the Fed's monetary policy may have adverse impacts on China's real economy and make macro-control more difficult.
A large amount of the literature proves that the Fed's monetary policy adjustment has a significant spillover effect on other countries, which is to a large extent transmitted by international capital flows. However, there is no consensus has on the measures that emerging economies should take to effectively deal with the impacts of foreign monetary shocks. The quality of the measures can depend on the research perspectives, data processing, and model settings in relevant studies. Chinese research mainly focuses on traditional exchange rate, price, and financial friction. In this study, we incorporate international investors, foreign-funded enterprises, and the liquidity shocks and financial frictions of the banking sector into a new Keynesian DSGE model under open conditions, to measure the degree of capital control. The model consists of the six submodels of international investors and family, enterprise, banking, foreign, and government sectors. Monetary policy uncertainty has been found to adversely affect the economy, so we introduce the Fed's monetary policy uncertainty into the model and explore its effects.
Our study makes three main contributions to the literature. First, the research frameworks of Gertler and Karadi (2011) and Radde (2015) are extended to open conditions. A DSGE model that includes international investors, foreign direct investment, bank liquidity shocks, and financial friction is developed, and the impacts and mechanism of the Fed's interest rate hike on China's macro economy is analyzed. Second, we follow Fernández-Villaverde and Rubio-Ramírez (2010) and introduce the stochastic volatility of monetary policy in the U.S. interest rate rules to reflect the uncertainty of monetary policy. We then examine the effects of this uncertainty on China's economy. Third, based on the DSGE model, we use welfare analysis criteria to assess the measures for dealing with the Fed's interest rate hike, and conduct an analysis of the impacts of external adverse shocks.
We generate three main findings. First the Fed's rate hike leads to a decline in China's output, investment, and inflation, and also causes exchange rate depreciation, international capital outflows, and tight liquidity in the banking system. The increase in the degree of financial friction and bank leverage leads to a greater decline in China's output, investment, and asset prices after the Fed's interest rate hike, which then threatens China's macroeconomic stability. Second, restricting international capital flows in response to the Fed's interest rate hike can effectively stabilize China's economy and improve social welfare, and the implementation of a fixed exchange rate and the pegging of China's central bank to U.S. interest rates increases macroeconomic volatility and leads to a decline in social welfare. Third, the increase in the uncertainty of Fed's monetary policy leads directly to a decline in investment, labor demand, and output of foreign-funded enterprises, and also has significant negative spillover effects on China's total output, total investment, and asset prices, which increases the country's macroeconomic fluctuations.
Our results show that turmoil in international financial markets and international trade has adverse impacts on China's economy. Although stabilizing the economy is important in the short term, China should continue to reform its financial market in the long term. In addition, when formulating its interest rate policy, the Chinese central bank should consider China's economic and financial conditions more closely.
|
|
Received: 14 August 2018
Published: 03 August 2020
|
|
|
|
|
| [1] |
傅广敏,2017,《美联储加息、人民币汇率与价格波动》,《国际贸易问题》第3期,第131～142页。
|
| [2] |
何国华和李洁,2017,《跨境资本流动、金融波动与货币政策选择》,《国际金融研究》第9期,第3～13页。
|
| [3] |
康立和龚六堂,2014,《金融摩擦、银行净资产与国际经济危机传导——基于多部门DSGE模型分析》,《经济研究》第5期,第147～159页。
|
| [4] |
李力、王博、刘潇潇和郝大鹏,2016,《短期资本、货币政策和金融稳定》,《金融研究》第9期,第18～32页。
|
| [5] |
马勇,2013,《植入金融因素的DSGE模型与宏观审慎货币政策规则》,《世界经济》第7期,第68～92页。
|
| [6] |
王博、李力和郝大鹏,2019,《货币政策不确定性、违约风险与宏观经济波动》,《经济研究》第3期,第119～134页。
|
| [7] |
王冠楠和项卫星,2017,《金融摩擦与宏观经济的外部脆弱性——基于美联储加息政策的分析视角》,《国际金融研究》第7期,第13～23页。
|
| [8] |
周诚君、傅勇和万阿俊,2014,《人民币升值是影响中国出口的主要因素吗——理论与实证研究》,《金融研究》第11期,第1～21页。
|
| [9] |
张勇,2015,《热钱流入、外汇冲销与汇率干预——基于资本管制和央行资产负债表的DSGE分析》,《经济研究》第7期,第116～130页。
|
| [10] |
Andreasen, M. M., J. Fernández-Villaverde, and J. F. Rubio-Ramírez. 2017. “The Pruned State-space System for Non-linear DSGE Models: Theory and Empirical Applications”, The Review of Economic Studies, 85(1):1～49.
|
| [11] |
Chang, C., Z. Liu and M. M. Spiegel. 2015. “Capital Controls and Optimal Chinese Monetary Policy”, Journal of Monetary Economics, 74: 1～15.
|
| [12] |
Cook, D. and M. B. Devereux. 2016. “Exchange Rate Flexibility under the Zero Lower Bound”, Journal of International Economics, 101: 52～69.
|
| [13] |
Edwards, S. 2012. “The Federal Reserve, the Emerging Markets, and Capital Controls: A High‐Frequency Empirical Investigation”, Journal of Money, Credit and Banking, 44: 151～184.
|
| [14] |
Fernández-Villaverde, J., and J. Rubio-Ramírez. 2010. “Macroeconomics and Volatility: Data, Models, and Estimation”, NBER Working Paper, No. w16618.
|
| [15] |
Fernández-Villaverde, J., P. Guerrón-Quintana, J. F. Rubio-Ramírez, and M. Uribe. 2011. “Risk Matters: The Real Effects of Volatility Shocks”, The American Economic Review, 101(6):2530～2561.
|
| [16] |
Galí, J. 2015. Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework and Its Applications, Princeton University Press.
|
| [17] |
Galí, J. and T. Monacelli. 2005. “Monetary Policy and Exchange Rate Volatility in a Small Open economy”, The Review of Economic Studies, 72(3): 707～734.
|
| [18] |
Gertler, M. and P. Karadi. 2011. “A Model of Unconventional Monetary Policy”, Journal of monetary Economics, 58(1): 17～34.
|
| [19] |
Han, X. and S. J. Wei. 2014. “Policy Choices and Resilience to International Monetary Shocks”, Global Economic Review, 43(4): 319～337.
|
| [20] |
Husted, L., J. Rogers, and B. Sun. 2020. “Monetary Policy Uncertainty”, Journal of Monetary Economics, forthcoming.
|
| [21] |
Iacoviello, M. and S. Neri. 2010. “Housing Market Spillovers: Evidence from an Estimated DSGE Model”, American Economic Journal: Macroeconomics, 2(2):125～64.
|
| [22] |
Lakdawala, A., T. Moreland, and M. Schaffer. 2020. “The International Spillover Effects of US Monetary Policy Uncertainty”, Working Paper 2020-8, Michigan State University, Department of Economics.
|
| [23] |
Prasad N. 2018. “Sterilized Interventions and Capital Controls”, Journal of International Money and Finance, 88: 101～121.
|
| [24] |
Radde, S. 2015. “Flight to Liquidity and the Great Recession”, Journal of Banking & Finance, 54: 192～207.
|
| [25] |
Rey H. 2015. “Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence”, NBER Working Paper, No. w21162.
|
| [26] |
Schmitt-Grohé, S. and M. Uribe. 2004. “Solving Dynamic General Equilibrium Models Using a Second-order Approximation to the Policy Function”, Journal of Economic Dynamics and Control, 28(4):755～775.
|
| [27] |
Tillman, P. 2016. “Uncertainty about Federal Reserve Policy and Its Transmission to Emerging Economies: Evidence from Twitter”, ADBI Working Paper 592, Asian Development Bank Institute.
|
| [28] |
Uribe, M. and V. Z. Yue, 2006. “Country Spreads and Emerging Countries: Who Drives Whom？”, Journal of international Economics, 69(1): 6～36.
|
|
|
|
