The Spillover Effects of the Federal Reserve’s Monetary Policy, the Transmission of Bank Credit Channels, and Chinese Asset Prices

This paper systematically investigates the spillover effects of the Federal Reserve’s monetary policy on Chinese asset prices, focusing on bank credit transmission channels. This study employs a balanced panel fixed-effects model to empirically examine three representative asset classes, namely bonds, stocks, and housing prices. It incorporates bank credit interest rate and total bank credit as mediating variables to identify the operational mechanism of the bank credit transmission channels in policy spillovers. The results indicate that: (i) Compared with the bond prices, the Federal Reserve’s monetary policy tightening is more likely to push up stock prices and housing prices, while exerting a suppressive effect on bond prices. The Shenzhen Stock Exchange Composite Index exhibits a more pronounced positive adjustment than the Shanghai Stock Exchange Composite Index. (ii) The Federal Reserve’s monetary policy generates significant spillover effects on Chinese asset prices through the bank credit interest rate channel. The synchronous increase in China’s bank lending rates can partially alleviate the downward pressure on housing prices caused by the Federal Reserve’s interest rate hikes, while simultaneously intensifying downward adjustments in bond and stock prices. (iii) The Federal Reserve’s monetary policy also produces significant spillover effects on Chinese asset prices through the bank credit quantity channel. Against the backdrop of Federal Reserve interest rate hikes, the expansion of China’s total bank lending tends to exacerbate downward pressure on both bond and stock prices while restraining the upward movement of housing prices. • Compared with the bond market, the Federal Reserve’s monetary tightening is more likely to drive up stock and housing prices, while exerting a dampening effect on bond prices. • The rise in China's bank lending rates has to some extent intensified downward pressure on bond and stock prices while also showing a certain positive linkage with housing prices. • Against the backdrop of the Federal Reserve’s interest rate hikes, the expansion of China’s total bank credit typically increases downward pressure on bond and stock prices and exerts a certain restraining effect on housing prices.