The impact of the Fed's interest rate hike on China's macroeconomy: Based on the TVP-VAR model

Zhiyuan Yao; Yuxin Zhang

doi:10.54097/zsbhf211

Authors

Zhiyuan Yao
Yuxin Zhang

DOI:

https://doi.org/10.54097/zsbhf211

Keywords:

Federal Reserve interest rate hike; Chinese economy; TVP-VAR model.

Abstract

This paper employs a Time Varying Parameter-Vector Auto regression (TVP-VAR) model to comprehensively examine the impact of the Federal Reserve's interest rate hikes on China's macroeconomy. The study reveals that the Federal Reserve's interest rate hike policy significantly affects China's interest rates, exchange rates, and capital markets, leading to reduced capital liquidity and increased exchange rate pressures. Additionally, this paper finds that the interest rate hike cycle is highly correlated with fluctuations in China's stock market, increasing market uncertainty and affecting investor confidence and market stability. Finally, the paper proposes policy recommendations such as enhancing monetary policy flexibility, stabilizing exchange rate policies, and strengthening financial market transparency to provide references for policy formulation amid global financial volatility.

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