Spillover Effect of U.S. Quantitative Easing Policy on China’s Economy

Abstract

In the context of economic globalization, the independence of monetary policy in each of the world's economies is declining. This is mostly demonstrated by the substantial economic spillovers that financial policy changes have on other countries' economies. The last two decades have witnessed a dramatic change in US monetary policy, which is the implementation and withdrawal of Quantitative Easing. The existing literature examining the spillover effects of US Quantitative Easing on the Chinese economy is mainly based on one specific channel. However, it lacks a complete framework of transmission channels. This paper reviews these findings and outlines a conceptual framework that unifies them. The framework comprehensively analyses the spillover effects of the US Quantitative Easing from three channels, which are the interest rate channel, trade channel and commodity price transmission channel. By analyzing its impact on China's economy in a comprehensive manner, it will help China's government better grasp the current international economic situation and better deal with the shocks to China's economic growth caused by changes in the monetary policies of other countries.