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 slowdown of economy and widening of domestic imbalances in China bothers economists and politicians across the globe. We estimate the influence of a negative output shock in China on a number of different economies. We concentrate on China's neighboring countries. We compare the results from the Global VAR model and from the Bayesian VAR models. Also using Bayesian model averaging we search for determinants of Chinese spillovers for the global economy. We find that spillovers are stronger to economies with less flexible exchange rates, a higher share of manufacturing in gross value added and to economies which are larger.
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