International transmission of Chinese monetary policy shocks to Asian countries

This study investigates the transmission mechanism of Chinese monetary policy shocks to other East Asian countries using a VAR model and focusing on their effects on the trade channel. The main empirical results are as follows. First, in response to Chinese expansionary monetary policy shocks, exports from East Asian countries to China decrease and imports into East Asian countries from China increase, via the expenditure switching effect. Second, final goods exports from East Asian countries to China increase through the income absorption effect. Third, and most interestingly, intermediate goods exports from East Asian countries to China increase, which is the consequence of the vertical trade structure across the East Asian region. Overall, East Asian economies’ exports to China increase and their trade balance with China improves in the medium- and long run