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The effect of changes in the US monetary policy on China's capital market stability and trade between China and Korea

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Title The effect of changes in the US monetary policy on China's capital market stability and trade between China and Korea
Author Gang, Jianhua; Qian, Zongxin; Zhang, Chao; Zhang, Jiarui
Publisher 세종 : 대외경제정책연구원
Publication Date 2015 - 12
Material Type Report
Country United States
China
South Korea
Holding 대외경제정책연구원; KDI국제정책대학원
Language English License
Series Title 연구보고서

Abstract

This paper first reviews the trade structure between China and the Republic of Korea (hereafter referred as Korea) and the two countries' international capital flow. Then it discusses the effect of the Federal Reserve rate on UIP in both China and Korea, which turns out to be uninfluential through our analysis. Then we use VAR model and the extended model, the multivariate GARCH-DCC model to examine interaction between different factors. The result shows that positive-legged equity return would induce outflow and flow positively affects equity return. Sharp offshore RMB devaluation would cause domestic market plummets and higher legged spread means higher carry trade return. Besides, in the respect of capital control effects, offshore RMB devaluation would cause spread to be wider because of inelasticity of the onshore RMB rate. Carry trade return has positive and significant intercept. (The rest omitted)

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