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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Global Spillovers of a China Hard Landing
Shaghil Ahmed
Ricardo Correa
Daniel A. Dias
Nils Gornemann
Jasper Hoek
Anil K. Jain
Edith X. Liu
Anna Wong
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.


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Shaghil Ahmed & Ricardo Correa & Daniel A. Dias & Nils Gornemann & Jasper Hoek & Anil K. Jain & Edith X. Liu & Anna Wong, Global Spillovers of a China Hard Landing, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 1260, 18 Oct 2019.
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Keywords: China ; Financial crisis ; Spillovers ; Financial system
DOI: 10.17016/IFDP.2019.1260
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