The Spillover Effect and Transmission Channel of US Monetary Policy on China’s Bond Market

Abstract

This paper uses the TVP-SV-VAR model to analyze the spillover effect and transmission channels of U.S. monetary policy on China's bond market. The results show that both short-term bond yields and long-term bond yields in China respond to the spillover effects of US monetary policy, while the short-term bond yields respond more quickly and to a higher degree. In terms of transmission channels, there is no structural change in the response of short-term Treasury bond yields to interest rate shocks, while there is structural change in long-term Treasury bond yields. The response direction of short-term Treasury bond yield to the positive exchange rate shock is positive, while the response direction of long-term Treasury bond yield to the positive exchange rate shock only shows a weak positive response when it lags 6 periods. Both short-term bond yield and long-term bond yield have a greater response to the impact of short-term capital flow and there are structural changes.