Impact of Chinese Financial Shocks: A GVAR Approach (1985-2016)

Attílio LA

Published on: 2023-12-30

Abstract

This article analyzes the influence of Chinese financial shocks on emerging and advanced economies using the GVAR from 1985Q4 to 2016Q4. Our research resulted in five findings: i) depressive shocks in Chinese financial markets can cause a global recession; ii) these shocks triggered the "flight to quality," with generalized domestic currencies devaluations to the U.S. dollar; iii) the stock exchange and the exchange rate markets worked as transmission channels of the shocks; iv) the prices of commodities were significantly affected by the shocks; v) China’s influence gained traction in the new millennium compared to the past, but there was no significant difference between the periods 2005 and 2014-16. Finally, the Chinese financial system has relevant spillover effects, impacting both international financial and real sectors.