Time-varying impact of U.S. financial conditions on China's inflation: a perspective of different types of events

Yanhong Feng; Shuanglian Chen; Wang Xuan; Tan Yong; Yanhong Feng; Shuanglian Chen; Wang Xuan; Tan Yong

doi:10.3934/QFE.2021027

Quantitative Finance and Economics

2021, Volume 5, Issue 4: 604-622. doi: 10.3934/QFE.2021027

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Research article

Time-varying impact of U.S. financial conditions on China's inflation: a perspective of different types of events

1.
School of Economics and Statistics, Guangzhou University, Guangzhou 510006, China
2.
Guangzhou International Institute of Finance and Guangzhou University, Guangzhou 510006, China
3.
Xingxiang school, Xiangtan University, Xiangtan 411105, China
4.
Department of Accounting Finance and Economics, Huddersfield Business School, University of Huddersfield, Queensgate, HD1 3DH, W Yorkshire, UK

Received: 31 May 2021 Accepted: 22 September 2021 Published: 29 September 2021
JEL Codes: E31, E44

In recent years, the frequency adjustment of U.S. monetary policy has a dynamic and global impact on other countries' economy. Based on the financial conditions index (FCI), the paper employs the time-varying parameter vector autoregressive model with stochastic volatility (TVP-VAR-SV) and spillover index respectively to investigate the time-varying impact of U.S. financial conditions (UFCI) on China's inflation (CINF) and its impact mechanisms. Some results are achieved as follows: first, the impacts of UFCI on CINF vary greatly over time both in the dimension of action duration and time point. Second, the effects of UFCI on CINF directly relate to different types of major events, and they are heterogeneous in action duration, degree, direction as well as the trend and range of fluctuations. In addition, UFCI can work on CINF through trade flow and China's financial market, and the China's financial market plays a main conductive role, and its conductive effect changes over time.
- U.S. financial conditions,
- China's inflation,
- time-varying impact,
- types of events,
- impact mechanism
Citation: Yanhong Feng, Shuanglian Chen, Wang Xuan, Tan Yong. Time-varying impact of U.S. financial conditions on China's inflation: a perspective of different types of events[J]. Quantitative Finance and Economics, 2021, 5(4): 604-622. doi: 10.3934/QFE.2021027

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Abstract

In recent years, the frequency adjustment of U.S. monetary policy has a dynamic and global impact on other countries' economy. Based on the financial conditions index (FCI), the paper employs the time-varying parameter vector autoregressive model with stochastic volatility (TVP-VAR-SV) and spillover index respectively to investigate the time-varying impact of U.S. financial conditions (UFCI) on China's inflation (CINF) and its impact mechanisms. Some results are achieved as follows: first, the impacts of UFCI on CINF vary greatly over time both in the dimension of action duration and time point. Second, the effects of UFCI on CINF directly relate to different types of major events, and they are heterogeneous in action duration, degree, direction as well as the trend and range of fluctuations. In addition, UFCI can work on CINF through trade flow and China's financial market, and the China's financial market plays a main conductive role, and its conductive effect changes over time.

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