Analyzing the Impact of China’s Monetary Policy on Belt and Road Economies: A Dynamic Perspective

This is the authors' abstract. We don't add key points for this paper.

China’s monetary policy generates significant yet heterogeneous spillover effects on Belt and Road Initiative (BRI) countries. Employing a stochastic volatility time‑varying parameter factor‑augmented vector autoregression (SV‑TVP‑FAVAR) model, this study analyzes a dataset of 2,740 macroeconomic variables from a large sample of BRI economies, which are classified into four distinct clusters for precise assessment. The results reveal notable variations in the impacts on bilateral trade, consumer price index (CPI), and gross domestic product (GDP), with the trade channel and the interest rate channel serving as the two primary transmission mechanisms. The effects differ across monetary policy instruments, and the time‑varying analysis captures structural shifts during critical events, including the launch of the BRI in 2013. The findings suggest that China should refine its monetary policies to balance domestic stability with external spillover effects, while BRI countries should strengthen financial cooperation to mitigate risks through these two channels. This study provides empirical insights for policymakers managing cross‑border monetary spillover effects.