Working Paper

Global Spillovers of a China Hard Landing


Abstract: China?s economy has become larger and more interconnected with the rest of the world, thus raising the possibility that acute financial stress in China may lead to global financial instability. This paper analyzes the potential spillovers of such an event to the rest of the world with three methodologies: a VAR, an event study, and a DSGE model. We find the sentiment channel to be the primary spillover channel to the United States, affecting global risk aversion and asset prices such as equity prices and the dollar, in addition to modest real effects through the trade channel. In comparison, the combined financial and real effects to other advanced and emerging market economies, especially net commodity exporters, would be more consequential due to their larger direct exposure to China and more limited scope of monetary policy to respond to shocks.

Keywords: China; Financial crisis; Spillovers; Financial system;

JEL Classification: F30; G28; E60;

https://doi.org/10.17016/IFDP.2019.1260

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Authors

    Ahmed, Shaghil

    Correa, Ricardo

    Dias, Daniel A.

    Gornemann, Nils

    Hoek, Jasper

    Jain, Anil K.

    Liu, Edith X.

    Wong, Anna

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2019-10-18

Number: 1260

Pages: 42 pages