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Liquidity expansion in China and the U.S. economy

Author

Listed:
  • Kang, Wensheng
  • Ratti, Ronald A.
  • Vespignani, Joaquin L.

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.

Suggested Citation

  • Kang, Wensheng & Ratti, Ronald A. & Vespignani, Joaquin L., 2014. "Liquidity expansion in China and the U.S. economy," MPRA Paper 59338, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:59338
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    File URL: https://mpra.ub.uni-muenchen.de/59338/1/MPRA_paper_59338.pdf
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    References listed on IDEAS

    as
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    4. Kim, Young Sik, 2001. "Liquidity, Prices, Seigniorage, And The Transition From Barter To Fiat Money," Macroeconomic Dynamics, Cambridge University Press, vol. 5(03), pages 353-379, June.
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    More about this item

    Keywords

    China’s liquidity; oil price; trade-weighted U.S. dollar;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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