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China’s Growing Influence in Southeast Asia - Monetary Policy and Equity Markets

We use structural VAR models with short-run restrictions to analyze the potential transmission of China’s monetary policy shocks to equity markets in Southeast Asia. Our results show that several of the markets in the region are influenced by China’s monetary policy, even though the effect is modest. The impact of a monetary expansion in China is significant and positive for four of the five Southeast Asian equity markets, indicating an increase in demand for goods and services in both China and abroad, which in turn shows up in the foreign equity market. The results provide evidence of China’s growing influence in Southeast Asia and its financial markets. The transmission effect is still quite small, but can be expected to increase if the current trends of deepening economic integration between China and Southeast Asia and a maturing Chinese central bank continue.

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File URL: http://swopec.hhs.se/hacerc/papers/hacerc2010-016.pdf
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Paper provided by China Economic Research Center, Stockholm School of Economics in its series Working Paper Series with number 2010-16.

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Length: 33 pages
Date of creation: 01 May 2010
Date of revision:
Handle: RePEc:hhs:hacerc:2010-016
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China Economic Research Center, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden

Phone: +46-8-736 90 00
Fax: +46-8-31 81 86
Web page: http://www.hhs.se/en/Research/Institutes/SCERI/

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  1. Jacques Miniane & John H. Rogers, 2007. "Capital Controls and the International Transmission of U.S. Money Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1003-1035, 08.
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  16. Jill Ann Holman & Rebecca Neumann, 2002. "Evidence on the cross-country transmission of monetary shocks," Applied Economics, Taylor & Francis Journals, vol. 34(15), pages 1837-1857.
  17. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 639-669.
  18. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
  19. Tomasz Koluk & Aaron Mehrotra, 2009. "The impact of Chinese monetary policy shocks on East and South-East Asia," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(1), pages 121-145, 01.
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