Echo over the Great Wall: Spillover Effects of QE Announcements on Chinese Yield Curve

This paper examines the spillover effects of announcements of quantitative easing (QE) conducted by the central banks of U.S., U.K., Eurozone, and Japan on Chinese Treasury yield curve. Despite China's firewall of capital control and managed exchange rate regime, the QE announcements of U.S. move the Chinese yield curve immediately with significance, through the channels of signaling as well as portfolio balancing. The U.S. QE impact is particularly strong. The results are robust across a variety of event analysis methods. Using the heteroskedasticity assumption for identification and allowing for existence of alternative sources of shocks, we find the U.S. QE impact is sizable even compared to China's own monetary policy shocks.


Presented at:

• 5th HenU/INFER Workshop on Applied Macroeconomics in Kaifeng (Mar 2019)