International Spillover Effects Research Articles

Spillover effects of multidimensional information in Fed statements on China's bond market

This paper shows significant information spillover effects of Fed statements on China's bond market. Regarding Fed monetary policy statements as external shocks, we extract both monetary policy information and narrative sentiment information from the statements, with the sentiment data measured using the text analysis method. Furthermore, it investigates spillover effects of the multidimensional Fed information on investors' trading behaviors in China's bond market, using the event study method. Our study emphasizes three key findings. First, both monetary policy and textual sentiment within Fed statements influence trading decisions of China's bond investors, generating international spillover effects. Importantly, the role of textual sentiments as an additional spillover channel of Fed statements has been overlooked in existing literature. Second, the US monetary policy information influences investors' expectations of China's short-term interest rates and their perceptions of risks associated with holding China's long-term bonds, while the Fed's negative and uncertain sentiments primarily impact investors' short-term rate expectations. Moreover, the spillover effects of Fed sentiments on China's yield curve cannot be blocked by China's managed floating exchange rate regime. Third, the heterogeneity test reveals that spillover effects of multidimensional information in Fed conventional monetary policy statements on China's bond market are stronger than those of Fed unconventional monetary policy statements. These findings suggest that Fed narrative sentiments should be incorporated into the research framework of international spillover effect of monetary policy, especially amidst the current period characterized by growing anticipation of federal funds rate cuts and enduring monetary policy uncertainty, providing valuable insights for trading decisions of China's bond market investors.

Inter-industry trade and business cycle dynamics

Abstract Motivated by the increased importance of trade between industrialized and less-developed countries, we build a two-sector dynamic stochastic general equilibrium model featuring inter-industry trade as well as intra-industry trade to analyze the business cycle dynamics of industrialized countries. We find that import-competing sectors are more sensitive to domestic productivity shocks than exporting sectors, due to their stronger reliance on domestic demand. This generates pressure to adjust relative prices and to reallocate factors of production. It also propagates the international spillover effects of productivity shocks leading to stronger business cycle comovement across countries, relative to a traditional business cycle model that does not feature inter-industry trade.

International Spillover Effects of Geopolitical Risks on Economic Growth

International Spillover Effects of Geopolitical Risks on Economic Growth

Asymmetries in the international spillover effects of monetary policy: Based on TGVAR model

Based on the TGVAR framework, this study examined the asymmetrical global spillover effects in the major areas and countries. Our analysis makes the case that the asymmetries in monetary policy are primarily caused by heterogeneity in monetary policy tool shocks, regional and macroeconomic target responses, and disparities in economic conditions and international position among nations. Our findings demonstrate that emerging economies are more vulnerable to monetary policy spillover effects than advanced economies for both quantity-based and price-based monetary policies. Our research also reveals that while the spillover effects on inflation varied considerably, the effects on real GDP are more closely impacted. Without countermeasures, a shock resulting in a uniform cutting of short-term interest rates might cause a recession in the majority of economies while a shock resulting in a rise in the broad money supply could trap some economies in stagflation.

The evolving international effects of China's government spending

AbstractThis paper examines the international spillover effects of China's government spending using the Bayesian technique based on a monthly dataset covering China, the world economy and the G7. The split‐sample analysis shows that China's government spending had a significant positive spillover effect on the world economy after 2008, while the effect was moderately negative before 2008. The trade channel plays a dominant role in the international propagation of China's government spending shock and could explain the changes in spillover effects. For the domestic economy, the stimulative effect of China's government spending has weakened slightly after 2008.

The effect of different periods of unconventional monetary policies on Japanese financial markets

PurposeThis study aims to examine to what extent the Japanese financial markets are affected by the four periods of unconventional monetary policies (UMP) implemented by the Bank of Japan from 2013 to 2020.Design/methodology/approachUsing the daily 10-year term spread as a proxy for monetary easing policy, this study uses four sub-sample periods from 2013 to 2020 to look into the effectiveness of UMP on the Japanese financial markets.FindingsOur result shows that not all of the Bank of Japan's unconventional monetary policies are equally effective in influencing the Japanese financial markets. In particular, the QQE policy implemented from April 2013 to October 2014 effectively influenced the stock market, banking sector and foreign exchange market. However, the financial market impact of monetary policy is muted during the QQE expansion period. Likewise, the QQE with a negative interest rate policy influences only the banking sector. Finally, the QQE with its yield curve control policy effectively impacts the financial markets.Research limitations/implicationsThis research can be expanded by studying the international spillover effect of the Bank of Japan's UMP on the financial markets in Asian countries.Practical implicationsThe findings of this study enable investors to understand the causal relationship between the Bank of Japan's UMP and the financial market indicators, thereby helping them to position their portfolio investments. From the policy perspective, the finding is useful to inform the Bank of Japan on which policy is relatively effective in affecting the financial markets. In light of the empirical finding, the Bank of Japan should continue to pursue the QQE YCCP or revert to the initial QQE policy, as the two policies are relatively more effective than the QQE expansion and QQE NIRP in affecting the Japanese financial markets.Social implicationsThe empirical finding highlights the importance of controlling for the impact of different QQE policies in the model. Future research may consider conducting sub-sample analysis to cater to the different QQE policy regimes. This approach provides a clearer picture and valid inferences on the financial market impact of each QQE policy.Originality/valueThis study provides a comprehensive analysis of the impact of Bank of Japan's QQE on the Japanese financial markets. For the market participants, the findings of this study suggest that investors should closely gauge the development of the unconventional monetary policies of the Bank of Japan because the monetary easing policy influences the decision-making process of commercial banks, pension funds, mutual funds, retail investors and other stakeholders in the financial markets. The policy twist will have future ramifications for their loan, investment and retirement fund portfolios.

Evidence-related framing in the German debate on sugar taxation: a qualitative framing analysis and international comparison

Background:Taxation of sugar and sugar-sweetened beverages is considered a key policy for improving population-level nutrition. Implementation is influenced by the way evidence is used and framed in public debates. At this time, no sugar tax has been implemented in Germany. Aims and objectives:This study aims to deepen the understanding of the political dynamics that influence the adoption of sugar taxes by analysing the use of evidence in the German media debate on sugar taxation and comparing its findings with analyses from other countries. Methods:In 114 German newspaper articles, published between 01/2018 and 03/2019, we analysed the use and framing of evidence with an abductive thematic analysis approach. We compared our findings with analyses on the framing around sugar taxation from Mexico, the US and the UK. Findings:Evidence was a salient component of the German debate. As in the comparison countries, evidence was used by both tax proponents and opponents but framed differently, for example, regarding problem definitions. However, the German debate relied more strongly on examples from other countries and less on economic arguments. Discussion and conclusions:Our findings suggest that German tax proponents should proactively consider economic arguments and counter spurious arguments made by tax opponents. Researchers should be aware of their work’s potential international spillover effects, and public health advocates should correct expectations regarding the evidence on, and health effects of, isolated measures against obesity. To deepen the understanding of the German policy process, further research should involve social media, public documents and stakeholder networks.

International Spillover Effects of Air Pollution: Evidence from Mortality and Health Data

International Spillover Effects of Air Pollution: Evidence from Mortality and Health Data

The International Spillover Effects of Us Quality of Political Signals: A Global Var Approach

The International Spillover Effects of Us Quality of Political Signals: A Global Var Approach

Bank dependency on foreign funding and global liquidity shocks: The importance of US monetary policy for a developing country

We examine international spillover effects of US monetary policy on bank lending in Cambodia, using unique data about loan disbursements and the funding structures of Cambodian banks from 2013Q1 to 2019Q2. The banking sector in a developing country is likely dependent on foreign funding, while the dependency could be the source of vulnerability to international monetary and economic conditions. We empirically document that US monetary policy is likely to be transmitted to Cambodian bank lending through foreign funding. We also document that Cambodian banks change their risk-taking behavior in response to the spillover effects of US monetary policy. Furthermore, these results are robust for US monetary policy, but weak and not robust for the monetary policies of the Cambodian bank’s major shareholders’ home countries, suggesting that US monetary policy should be primarily taken into account in supervising banks that are reliant on foreign funding, in addition to domestic economic conditions.

On the International Spillover Effects of Uncertainty

On the International Spillover Effects of Uncertainty

Economic policy uncertainty in US and Europe: time-varying Granger causality

ABSTRACT This study provides insights into the linkage between the policy uncertainty index of the United States (US) and Europe based on the time-varying causality approach. We also consider the variability of these indices derived from the ARFIMA-GARCH models. Our findings indicate a prevailing causality running from US uncertainty to both European and European variability of uncertainty. The results are in line with some theoretical models that associate macroeconomic uncertainty and international spillover effects.

The spillover effects of China's monetary policy shock: Evidence from B&R countries

This paper examines the international spillover effects of China's monetary policy shock on macro and financial variables in 26 countries along the Belt and Road (B&R) from 2000 to 2019. We find that a surprise Chinese monetary tightening brings about a widening in the short-term interest rate spread, a drop in the equity price, nominal depreciation against the RMB and real depreciation, and an improvement in the trade balance, on average, across the 26 B&R countries. Moreover, substantial heterogeneous effects emerge in the responses of the foreign real exchange rate and the trade balance in different groups in terms of the 26 countries' trade weights with China, capital openness, and national income levels. Finally, all the empirical evidence reveals that the expenditure switching effect plays an important role in facilitating the international transmission of China's monetary policy shock.

China’s government spending and global inflation dynamics: The role of the oil price channel

This paper explores the international spillover effects of China’s government spending onto global inflation dynamics and the role of the oil price channel in the transmission process based on a monthly dataset covering 20 OECD economies spanning from January 2000 to September 2021. Based on the estimation results of Large Bayesian VAR models this paper provides three novel findings to the literature. Firstly, China’s government spending expansion significantly raises the CPI of most OECD economies. Secondly, the oil price rises significantly in response to China’s government spending expansion and magnifies its spillover effect on global CPI inflation. Thirdly, the effect of the oil price channel on the international transmission of China’s government spending to the global inflation dynamics crucially depends on the oil import dependence rate and the energy subsidies of the shock recipient countries.

The International Spillover Effect of Import Trade on Energy Efficiency in the Post-COVID-19 Era: Evidence From China

China is in a transition period—its government has been expanding imports and pushing itself to shift from a world factory to a world market. One of the aims is to promote energy reform and ensure energy security. Taking the resource-based regions of China as objects, based on 2003–2017 panel data, this paper investigates energy efficiency loss by the stochastic frontier approach and the effects of different technical inefficiency items. Surprisingly, quantitative results show that 99.9% energy efficiency loss in these regions is caused by technical inefficiency (which had never been found and discussed in previous studies). However, this does not mean that China’s efforts to expand imports as a way to improve energy efficiency and energy security are undesirable. Instead, interestingly, it is import (−0.083***) rather than industrial structure (0.524***) that can significantly reduce energy efficiency loss. Then, it employs the counter-fact test to quantify the positive accelerating effect of human capital (average as high as 4.1%) as a key factor of absorptive capacity in the technology spillover. Lastly, it puts forward the corresponding policy suggestions in energy fields, to solve the problem effectively, especially the “comprehensive technology spreading center” and “innovative three-dimensional talent supplementary and flow mechanism.”

The international spillover effects of US trade policy uncertainty

This paper examines the international spillover effects on the exports from 30 of the United States’ major trading partners of the removal of US trade policy uncertainty, when China joined the WTO in 2001, by using product-level data at the HS-6 level, from 1991 to 2007. The empirical analysis discovers that removing US trade policy uncertainty has sizable positive spillover effects on Canada, Mexico, Brazil, Belgium, France, Germany, The Netherlands, Norway, Spain, Sweden, Switzerland, the United Kingdom, Hong Kong, India, and New Zealand. The countries that experience negative spillover effects are Austria, Japan, and Taiwan.

An empirical study of international oil price and RMB exchange rate return spillover effect

Using the spillover index method proposed by Diebold and Yilmaz(2012),we examine the return spillover effect between oil market and three major markets of the RMB exchange rate (CNY, NDF, CNH market ) .We find that there exists a return spillover effect between oil market and three RMB exchange rate markets, and oil price is the absolute contributor of information overflow. Furthermore, we explore the impact of “811” exchange rate reform on the relationship between oil and exchange rate market. We find after the reform, the spillover from oil market to exchange rate market decreases while the spillover in the opposite direction increases. We also employ the rolling window technique and find return spillovers between the oil and exchange rate markets are time-varying.

International spillover effects of unconventional monetary policies of major central banks

This study examines the effects of unconventional monetary policies (UMPs) by the major central banks, namely the Bank of England (BOE), Bank of Japan (BOJ), European Central Bank (ECB) and the Federal Reserve (Fed), on the international financial markets, taking global spillovers and monetary policy interaction into account. To this end, we applied the Global Vector Autoregressive (GVAR) model to 35 countries/economies and one region for the period from March 2009 to July 2019. In addition, we accommodated the smooth transition to the GVAR to consider possible structural changes in the effects of UMPs and monetary policy interaction. Our results indicate the importance of capturing structural changes, showing the remarkable difference between the beginning and end of the sample. For example, we found clear evidence of monetary policy coordination after the global financial crisis and less evidence of policy interaction in the recent period. Also, our results suggest that generally, the UMPs of the major central banks had stronger effects on both domestic and international bond markets in the earlier period. In contrast, the global equity markets responded more positively to the UMPs in the recent period, although there was no noticeable difference in the responses of domestic equity markets throughout the sample.

Spillovers of US unconventional monetary policy: quantitative easing, spreads, and international financial markets

This study investigates the international spillover effects of US unconventional monetary policy (UMP)—frequently called large-scale asset purchases or quantitative easing (QE)—on advanced and emerging market economies, using structural vector autoregressive models with high-frequency daily data. Blinder (Federal Reserve Bank of St. Louis Rev 92(6): 465–479, 2010) argued that the QE measures primarily aim to reduce US interest rate spreads, such as term and risk premiums. Considering this argument and recent empirical evidence, we use two spreads as indicators of US UMP: the mortgage and term spreads. Based on data from 20 emerging and 20 advanced countries, our empirical findings reveal that US unconventional monetary policies significantly affect financial conditions in emerging and advanced countries by altering the risk-taking behavior of investors. This result suggests that the risk-taking channel plays an important role in transmitting the effects of these policies to the rest of the world. The extent of these effects depends on the type of QE measures. QE measures such as purchases of private sector securities that lower the US mortgage spread exert stronger and more significant spillover effects on international financial markets than those that reduce the US term spread. Furthermore, the estimated financial spillovers vary substantially across countries and between and within the emerging and advanced countries that we examine in this study.

Bank foreign assets, government support and international spillover effects of sovereign rating events on bank stock prices

We study the international spillover effects of sovereign rating events on the stock returns of large banks in nonevent countries. Using S&P rating assessments from 1983 to 2018, we find that negative sovereign rating events spill over to foreign banks’ stock returns through the foreign asset holdings channel , especially if the rating shock to domestic banks is severe. Foreign sovereign debt holdings are not the only source to open such a channel. Negative sovereign rating events also spill over through foreign interbank exposures, but not through foreign claims to nonbank firms. We further find a previously undocumented positive side effect of government support to banks. The guarantee channel limits international spillover effects if banks with strong expected government support are located in countries with high sovereign ratings.