The tale of two titans: US and China's distinct impact on the global economy

Abstract

This study employs a GVEC model to analyze the global influences of US and China's monetary policies. It reveals that a 25 basis point US interest rate hike prompts a -0.18 ppt change in foreign economies, predominantly indirectly via commodity price fluctuations and cross-country interactions. Conversely, China incites a -0.10 ppt direct effect, largely through the trade channel. In terms of foreign GDP fluctuations, the US accounts for a considerable 10.5 %, with its equity markets playing a significant role, compared to China's 2.3 % contribution. These results reveal distinct paths for US and China's global influence via financial and trade routes, respectively.