Financial spillovers and spillbacks: new evidence from China and G7 countries

Fang, Y., Jing, Z., Shi, Y. and Zhao, Y. (2021) Financial spillovers and spillbacks: new evidence from China and G7 countries. Economic Modelling, 94, pp. 184-200. (doi: 10.1016/j.econmod.2020.09.022)

Abstract

With the increasing openness of the Chinese economy, Chinese financial markets are becoming more integrated with those in developed markets. The goal of this paper is to comprehensively investigate the spillovers and spillbacks in stock, bond, and foreign exchange markets between China and the G7 countries using data from 2000 to 2018. Four important findings emerge: (1) financial spillovers account for a large proportion of the variations in bond, stock, and foreign exchange markets, indicating that the international spillover effect has become an important driver of asset prices; (2) Chinese financial markets have a growing impact on global financial markets over time, especially during periods of turbulence; (3) spillovers from the G7 to China are still higher than the spillbacks from China, suggesting that Chinese markets are more influenced by the financial markets in the G7 economies than the other way around; (4) economic policy uncertainty is the main driver of cross-border financial spillovers. Our findings have important implications for policy makers who aim to promote international macroprudential policy coordination.

• Item Type: Articles
• Additional Information: Yi Fang specially acknowledges the financial support from the National Natural Science Foundation of China (Grant No. 71973162), Zhongbo Jing specially acknowledges the financial support from the National Natural Science Foundation of China (Grant No. 71703182), and Yang Zhao specially acknowledges the financial support from the National Natural Science Foundation of China (Grant No. 71801117).
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Shi, Dr Yukun
• Authors: Fang, Y., Jing, Z., Shi, Y., and Zhao, Y.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Economic Modelling
• Publisher: Elsevier
• ISSN: 0264-9993
• ISSN (Online): 1873-6122
• Published Online: 12 October 2020
• Copyright Holders: Copyright © 2020 Elsevier B.V.
• First Published: First published in Economic Modelling 94: 194-200
• Publisher Policy: Reproduced in accordance with the publisher copyright policy