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Working Paper
Hot money and quantitative easing: the spillover effect of U.S. monetary policy on Chinese housing, equity and loan markets
We study a factor-augmented vector autoregression model to estimate the effects of changes in U.S. monetary policy, as well as changes in U.S. policy uncertainty, on the Chinese economy. We find that since the Great Recession, a decline in the U.S. policy rate would result in a significant increase in Chinese regulated interest rates, and rise in Chinese housing investment. One possible reason for this is the substantial inflow of hot money into China. Responses of Chinese variables to U.S. shocks at the zero lower bound are different from that in normal times, which suggest structural ...
Working Paper
Stock-Bond Return Correlation, Bond Risk Premium Fundamentals, and Fiscal-Monetary Policy Regime
We incorporate regime switching between monetary and fiscal policies in a general equilibrium model to explain three stylized facts: (1) the positive stock-bond return correlation from 1971 to 2000 and the negative one after 2000, (2) the negative correlation between consumption and inflation from 1971 to 2000 and the positive one after 2000, and (3) the coexistence of positive bond risk premiums and the negative stock-bond return correlation. We show that two distinctive shocks—the technology and investment shocks—drive positive and negative stock-bond return correlations under two ...