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Spillover Effect Of The Federal Reserve’S Forward Guidance On China’S Financial Markets: From Mechanism Analysis To Empirical Test

Author

Listed:
  • XIN DENG

    (Hunan University of Technology and Business, 569 Yuelu, Changsha, Hunan 410205, P. R. China†Science and Technology on Information Systems Engineering Laboratory, National University of Defense Technology, Changsha, Hunan 410073, P. R. China)

  • LIN GE

    (Hunan University of Technology and Business, 569 Yuelu, Changsha, Hunan 410205, P. R. China)

  • XUAN WU

    (��Hunan Branch of China Construction Bank, Yin’Gang Building, No. 2, Baisha Road, Changsha, Hunan 410011, P. R. China)

Abstract

This study analyzed the channels responsible for the spillover effect of the US Federal Reserve’s (Fed’s) forward guidance on China’s financial markets with an event study and EGARCH model with data collected over the past decade. The Fed’s forward guidance affects China’s foreign exchange, bond, stock and money markets. In the three trading days before and after the event, China’s foreign exchange market had an instantaneous reaction, the bond and stock market had lagged reactions, and the money market reaction lasted for the full event window. The Fed’s forward guidance on China’s financial market differs based on the Fed’s monetary policy, guidance type and whether the guidance content is adjusted or not.

Suggested Citation

  • Xin Deng & Lin Ge & Xuan Wu, 2022. "Spillover Effect Of The Federal Reserve’S Forward Guidance On China’S Financial Markets: From Mechanism Analysis To Empirical Test," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 67(02), pages 603-634, March.
    • Handle: RePEc:wsi:serxxx:v:67:y:2022:i:02:n:s0217590821500612
    DOI: 10.1142/S0217590821500612
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