International transmission of China’s monetary policy

This paper quantifies the spillover effects and explores the transmission channels in a panel of advanced and emerging economies. Using a panel local projection model to identify Chinese monetary policy shock by the change in the 7-day repo rate in the interest rate swap market, we find that China's monetary tightening causes a significant drop in global output, with a larger decline in emerging economies than in advanced economies. Moreover, spillovers of Chinese monetary policy mainly depend on the trade channel, while the exchange rate channel and the financial channel are insignificant. To further explain empirical findings, we develop a basic two-country model and unveil the inherent logic.