The role of China in the world economy: evidence from a global VAR model

Abstract

Since the 1980's China has experienced very high economic growth and its share in global trade has increased rapidly. Nowadays, however, the Chinese economy is rebalancing and its growth is slowing. The paper investigates the spillover effects of a negative demand shock and negative stock price shock in the Chinese economy on other countries. We apply a GVAR model, that enables us to model international linkages between countries. Our results show that a one percent negative China GDP shock reduces global growth by 0.22% in the short run. We find that GDP shock affects emerging economies more strongly than advanced economies. We also show that stock prices shock affects only emerging economies and does not affect advanced economies.

The Impact of Foreign Shocks on the Polish Economy

“…The reactions of imports and exports seem to be even greater for the Polish economy, but if we take into account the confidence bands we may conclude that the reactions are identical. This result is different than in Blagrave and Vesperoni [2016] or Sznajderska [2019] and Sznajderska and Kapuściński [2020], where the authors report a stronger impact of a China demand shock on the euro area than on the Polish economy.…”

“…It turns out that the strength of reaction of Poland and the euro area to a foreign output shock from China is similar. One could expect a stronger reaction of the euro area because of its stronger trade and financial linkages with China [Sznajderska andKapuściński, 2020 andSznajderska, 2019]. The impulse from China, however, may have greater indirect effects on the Polish economy, for example through the euro area.…”

“…Considering all possible scenarios, and thus additional simulations, it turns out that GDP in the euro area could fall by a maximum of 1.1% in response to a cumulative 3.3% drop in China's GDP over a threeyear period. Sznajderska [2019] and Sznajderska and Kapuściński [2020] apply the GVAR model to estimate the impact of a slowdown in the Chinese economy on other economies. The GVAR model allows for changes in domestic GDP, the price level, the stock market index, the exchange rate and the interest rate after a Chinese GDP shock.…”

“…The spillover effects from the Chinese economy are frequently estimated using GVAR (global vector autoregressive models) models (cf. Sznajderska 2019, andSznajderska andKapuściński 2020). Here we present a simpler SVAR model for Poland and separately, for comparison, for the euro area.…”

The Effect of Sustainable Asymmetric Market Conditions on Returns & Volatility in Stock Markets during a Global Financial Crisis

“…But remarkably, the co-movement of the stock market & behaviour (shocks) remained a controversial issue in finance literature (Aloui & Hkiri, 2014). But the fact remains that stock markets slow down the economy, cause distress, and increase volatility (Zhou et al, 2012;Bissoondoyal et al, 2018;Roni et al, 2018;Sehgal et al, 2018;Kirkulak, Uludag &Khurshid, 2019 andSznajderska, 2019).…”