Current Issue

Seoul Journal of Economics - Vol. 33 , No. 4

[ Article ]
Seoul Journal of Economics - Vol. 33, No. 3, pp.283-305
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2020
Received 29 Feb 2020 Accepted 30 Mar 2020
DOI: https://doi.org/10.22904/sje.2020.33.3.002

The Global Role of the United States and China
M. Ayhan Kose ; Csilla Lakatos ; Franziska Ohnsorge ; Marc Stocker
M. Ayhan Kose, World Bank; Brookings Institution; CEPR; CAMA, Tel: +1-202-473-8350 (akose@worldbank.org)
Csilla Lakatos, World Bank (clakatos@worldbank.org)
Franziska Ohnsorge, World Bank; CEPR; CAMA (fohnsorge@worldbank.org)
Marc Stocker, World Bank (mstocker1@worldbank.org)

JEL Classification: C15, E32, E52, F13, H30, O51


Abstract

Economic developments in the United States and China, the world’s two largest economies, can have effects far beyond their shores. A slowdown in these economies would result in considerably lower global growth transmitted through trade, financial, and commodity market channels. Changing U.S. financial conditions could reverberate across global financial markets, with pronounced effects on emerging market and developing economies (EMDEs) that rely heavily on external financing. China’s continued deceleration and rebalancing toward domestic consumption and services will likely put downward pressure on commodity prices worldwide and is expected to adversely affect commodity exporters.


Keywords: United States, China, Spillovers, Uncertainty, Trade, Business cycles, Global economy

Acknowledgments

We thank Carlos Arteta, Eduardo Borensztein, Kevin Clinton, Graham Hacche, Ugo Panizza, Franz Ruch, Christopher Towe, and seminar participants during the 2019 Annual Meetings of the World Bank Group and the International Monetary Fund. Yushu Chen, Shihui Liu, Shijie Shi, and Jinxin Wu provided excellent research assistance. The findings, interpretations and conclusions expressed in this paper will be entirely those of the authors and should not be attributed to the World Bank, its Executive Directors, or the countries they represent.


References
1. Abbate, A., S. Eickmeier, W. Lemke, and M. Marcellino. “The Changing International Transmission of Financial Shocks: Evidence from a Classical Time-Varying FAVAR.” Journal of Money, Credit and Banking 48 (No. 4 2016): 573-601.
2. Ammer, J., M. De Pooter, C. Erceg, and S. Kamin. “International Spillovers of Monetary Policy.” IFDP Notes, Federal Reserve Board, Washington, DC (2016).
3. Arteta, C., M. A. Kose, F. Ohnsorge, and M. Stocker. “The Coming U.S. Interest Rate Tightening Cycle: Smooth Sailing or Stormy Waters?” Policy Research Note 15/02, World Bank, Washington, DC (2015).
4. Arteta, C., M. A. Kose, M. Stocker, and T. Taskin. “Negative Interest Rate Policies: Sources and Implications.” CEPR Discussion Paper 11433, Centre for Economic Policy Research, London (2016).
5. Baffes, J., A. Kabundi, P. Nagle, and F. Ohnsorge. “The Role of Major Emerging Markets in Global Commodity Demand.” Policy Research Working Paper 8495, World Bank, Washington, DC (2018).
6. Baffes, J., M. A. Kose, F. Ohnsorge, and M. Stocker. “The Great Plunge in Oil Prices: Causes, Consequences and Policy Implications.” Policy Research Note 15/01, World Bank, Washington, DC (2015).
7. Baker, S. R., N. Bloom, and S. J. Davis. “Measuring Economic Policy Uncertainty.” The Quarterly Journal of Economics 131 (No. 4 2016): 1593-1636.
8. Bayoumi, T., and A. Swiston. “Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries.” IMF Staff Papers 56 (2009): 353-383.
9. Berkmen, S. P., G. Gelos, R. Rennhack, and J. P. Walsh. “The Global Financial Crisis: Explaining Cross-Country Differences in the Output Impact.” Journal of International Money and Finance 31 (No. 1 2012): 42-59.
10. Bloom, N. “The Impact of Uncertainty Shocks.” Econometrica 77 (No. 3 2009): 623-685.
11. Borio, C., and H. Zhu. “Capital Regulation, Risk-Taking and Monetary Policy: A Missing Link in the Transmission Mechanism?” Journal of Financial Stability 8 (No. 4 2012): 236-251.
12. Bowman, D., J. Londono, and H. Sapriza. “U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies.” Journal of International Money and Finance 55 (January 2015): 27-59.
13. Bruno, V., and H. Shin. “Capital Flows and the Risk-Taking Channel of Monetary Policy.” Journal of Monetary Economics 71 (April 2015a): 119-32.
14. Bruno, V., and H. Shin. “Cross-Border Banking and Global Liquidity.” Review of Economic Studies 82 (No. 2 2015b): 535-564.
15. Cardarelli, R., and M. A. Kose. “The Economic Impact of U.S. Budget Policies.” In U.S. Fiscal Policies and Priorities for Long-Run Sustainability, edited by C. Towe and M. Muhleisen. IMF Occasional Paper 227. Washington, DC: International Monetary Fund (2004).
16. Carrière-Swallow, Y., and L. F. Céspedes. “The Impact of Uncertainty Shocks in Emerging Economies.” Journal of International Economics 90 (No. 2 2013): 316-325.
17. Chow, J., F. Jaumotte, S. Park, and Y. Zhang. “Spillovers from Dollar Appreciation.” IMF Working Paper 15/02, International Monetary Fund, Washington, DC (2015).
18. Chui, M. K., I. Fender, and V. Sushko. “Risks Related to EME Corporate Balance Sheets: The Role of Leverage and Currency Mismatch.” BIS Quarterly Review (September 2014): 35-47.
19. De Grauwe, P., and Y. Ji. “International Correlation of Business Cycles in a Behavioural Macroeconomic Model.” CEPR Discussion Paper 11257, Center for Economic Policy Research, London (2016).
20. Druck, P., N. E. Magud, and R. Mariscal. “Collateral Damage: Dollar Strength and Emerging Markets’ Growth.” IMF Working Paper 15/179, International Monetary Fund, Washington, DC (2015).
21. Ehrmann, M., and M. Fratzscher. “Global Financial Transmission of Monetary Policy Shocks.” Oxford Bulletin of Economics and Statistics 71 (No. 6 2009): 739-759.
22. Ehrmann, M., M. Fratzscher, and R. Rigobon. “Stocks, Bonds, Money Markets and Exchange Rates: Measuring International Financial Transmission.” Journal of Applied Econometrics 26 (No. 6 2011): 948-974.
23. EIA (Energy Information Administration). “Short-Term Energy Outlook, November 2016. U.S. Energy Information Administration, Washington DC (2016).
24. Eickmeier, S. “Business Cycle Transmission from the US to Germany--A Structural Factor Approach.” European Economic Review 51 (No. 3 2007): 521-551.
25. Frankel, J., and G. Saravelos. “Can Leading Indicators Assess Country Vulnerability? Evidence from the 2008-09 Global Financial Crisis.” Journal of International Economics 87 (No. 2 2012): 216-231.
26. Frazer, G., and J. Van Biesebroeck. “Trade Growth under the African Growth and Opportunity Act.” The Review of Economics and Statistics 92 (No. 1 2010): 128-144.
27. Glick, R., and S. Leduc. “The Effects of Unconventional and Conventional U.S. Monetary Policy on the Dollar.” Working Paper 2013-11. Federal Reserve Bank of San Francisco, San Francisco (2013).
28. Goldberg, L. S., and C. Tille. “Vehicle Currency Use in International Trade.” Journal of International Economics 76 (No. 2 2008): 177-192.
29. Hirata, H., M. A. Kose, and C. Otrok. “Regionalization vs. Globalization.” IMF Working Paper 13/19, International Monetary Fund, Washington, DC (2013).
30. Huang, Z., C. Tong, H. Qiu, and Y. Shen. “The Spillover of Macroeconomic Uncertainty Between the U.S. and China.” Economics Letters 171 (September 2018): 123-127.
31. Huidrom, R., M. A. Kose, H. Matsuoka, and F. L. Ohnsorge. “How Important are Spillovers from Major Emerging Markets?” International Finance. Advance online publication (2018).
32. Huidrom, R., M. A. Kose, and F. L. Ohnsorge. “How Important Are Spillovers from Major Emerging Markets?” Policy Research Working Paper 8093, World Bank, Washington DC (2017).
33. IMF (International Monetary Fund). World Economic Outlook: Spillovers and Cycles in the World Economy. Washington, DC: International Monetary Fund (2007).
34. IMF (International Monetary Fund). “2015 Spillover Report.” July. International Monetary Fund, Washington, DC (2015a).
35. IMF (International Monetary Fund). Spillovers from Dollar Appreciation. Spillover Notes 2. Washington, DC: International Monetary Fund (2015b).
36. Jansen, W. J., and A. C. Stokman. “Foreign Direct Investment and International Business Cycle Comovement.” ECB Working Paper 401, European Central Bank, Frankfurt (2004).
37. Jurado, K., S. C. Ludvigson, and S. Ng. “Measuring Uncertainty.” American Economic Review 105 (No. 3 2015): 1177-1216.
38. Kolerus, C., M. P. N’Diaye, and C. Saborowski. “China’s Footprint in Global Commodity Markets.” Spillover Notes 6, International Monetary Fund, Washington, DC (2016).
39. Kose, M. A., C. Lakatos, F. Ohnsorge, and M. Stocker. “The Global Role of the U.S. Economy: Linkages, Policies, and Spillovers,” Policy Research Working Paper 7962, World Bank, Washington, DC (2017).
40. Kose, M. A., G. Meredith, and C. Towe. “How Has NAFTA Affected the Mexican Economy? Review and Evidence.” In Monetary Policy and Macroeconomic Stabilization in Latin America, edited by R. J. Langhammer and L. V. de Souza. New York: Springer (2005).
41. Kose, M. A., E. S. Prasad, and M. E. Terrones. “Volatility and Comovement in Globalized World Economy: An Exploration.” In Macroeconomic Policies in the World Economy, edited by H. Siebert. New York: Springer (2004).
42. Kose, M. A., A. Rebucci, and A. Schipke. “Macroeconomic Implications of CAFTA-DR.” In Central America: Global Integration and Regional Cooperation, edited by M. Rodlauer and A. Schipke. IMF Occasional Paper 243, International Monetary Fund, Washington, DC (2005).
43. Kose, M. A., and M. E. Terrones. Collapse and Revival: Understanding Global Recessions and Recoveries. Washington, DC: International Monetary Fund (2015).
44. Lane, P. R., and G. M. Milesi-Ferretti. “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970-2004.” Journal of International Economics 73 (No. 2 2007): 223-250.
45. Levchenko, A. A., and N. Pandalai-Nayar. “TFP, News, and ‘Sentiments’: The International Transmission of Business Cycles.” Journal of the European Economic Association (2018).
46. Mattoo, A., D. Roy, and A. Subramanian. “The Africa Growth and Opportunity Act and its Rules of Origin: Generosity Undermined?” The World Economy 26 (No. 6 2003): 829-851.
47. McCauley, R. N., P. McGuire, and V. Sushko. “Dollar Credit to Emerging Market Economies.” BIS Quarterly Review (December 2015): 27-41.
48. Mwase, N., P. N’Diaye, H. Oura, F. Ricka, K. Svirydzenka, and Y. Zhang. “Spillovers from China: Financial Channels.” Spillover Notes 5, International Monetary Fund, Washington, DC (2016).
49. Neely, C. “Unconventional Monetary Policy Had Large International Effects.” Journal of Banking and Finance 52 (March 2015): 101-111.
50. Rey, H. “International Credit Channel and Monetary Policy Autonomy.” Paper prepared for the 15th Jacques Polak IMF Annual Research Conference, Washington, DC (2015).
51. Romalis, J. “NAFTA’s and CUSFTA’s Impact on International Trade,” The Review of Economics and Statistics 89 (No. 3 2007): 416-435.
52. Rose, A., and M. Spiegel. “Cross-country Causes and Consequences of the Crisis: An Update.” European Economic Review 55 (No. 3 2011): 309-324.
53. Sun, Y., and W. Samuel. “ECCU Business Cycles: Impact of the United States.” IMF Working Paper 09/71, International Monetary Fund, Washington, DC (2009).
54. Swiston, A., and M. T. Bayoumi. “Spillovers across NAFTA.” IMF Working Paper 08/3, International Monetary Fund, Washington, DC (2008).
55. World Bank. Commodity Markets Outlook. July. Washington, DC: World Bank (2015).
56. World Bank. Global Economic Prospects: Spillovers and Weak Growth. January. Washington, DC: World Bank (2016a).
57. World Bank. Commodity Markets Outlook: OPEC in Historical Context. October. Washington, DC: World Bank (2016b).
58. World Bank. Global Economic Prospects: Weak Investment in Uncertain Times. January. Washington, DC: World Bank (2017).
59. World Bank. Commodity Markets Outlook: The Changing of the Guard—Shifts in Commodity Demand. June. Washington, DC: World Bank (2018a).
60. World Bank. Global Economic Prospects: The Turning of the Tide? June. Washington, DC: World Bank (2018b).
61. Yifan, S. and T. Abeysinghe. “International Transmission of Growth Shocks and the World Business Cycle.” SCAPE Policy Research Working Paper 1602. National University of Singapore, Singapore (2016).