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International Transmission of the P eople's B ank of C hina's Balance Sheet Expansion
Author(s) -
Huang Yiping,
Xie Peichu,
Wang Jiao
Publication year - 2014
Publication title -
asian economic policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.58
H-Index - 20
eISSN - 1748-3131
pISSN - 1832-8105
DOI - 10.1111/aepr.12071
Subject(s) - economics , balance sheet , monetary economics , vector autoregression , international economics , finance
The P eople's B ank of C hina's ( PBoC ) balance sheet expanded more dramatically than any of its major international counterparts during the past decade. The main contribution to this expansion was the rapid accumulation of the central bank's foreign assets, as a result of foreign exchange market intervention. In this paper, we examine the possible international transmission of this expansion by analyzing monthly data for C hina and 15 other countries over the period 2000–2012. Impulse response analysis based on vector autoregression modeling suggests that the PBoC's balance sheet expansion has greater impacts on developing than on developed countries. So far the influences appear to be dominated by “trade channels” instead of “financial channels,” possibly due to C hina's capital account controls. However, the impacts of the PBoC's balance sheet expansion on other countries' interest rates, exchange rates, and stock market prices could strengthen significantly in the coming years as C hina's economic scale grows and its capital account opens up.