Liquidity expansion in China and the U.S. economy

Kang, Wensheng and Ratti, Ronald A. and Vespignani, Joaquin L. (2014): Liquidity expansion in China and the U.S. economy.

Abstract

This paper investigates the influence of liquidity shocks in China on the U.S. economy over 1996-2012. The influence on the U.S. is through China’s influence on demand for imports, particularly that of commodities. In all models estimated a positive innovation in China’s liquidity is associated with: 1) a positive and statistically significant effect on oil and commodity prices that builds up rapidly over three months and then persists for twenty months; 2) a positive and statistically significant effect on U.S. CPI inflation that builds up over about six months or so and then persists; 3) a statistically significant depreciation of the real trade-weighted U.S. currency after about two or three months that achieves maximum absolute value after five to eight months and that then persists.

• Item Type: MPRA Paper
• Language: English
• Keywords: China’s liquidity, oil price, trade-weighted U.S. dollar
• Subjects: E - Macroeconomics and Monetary Economics > E0 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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