A nascent international financial channel of China’s monetary policy transmission



China is the world’s second-largest economy, and its monetary policy can affect global demand and trade. Using granular mutual fund data, this column finds that country stock indices and firm-level stocks with greater exposure to Chinese mutual funds experience significantly lower returns than those with less exposure following contractionary Chinese monetary policy announcements. These responses can be explained by a portfolio rebalancing channel and appear to be driven by retail investors. Overall, the findings show that China’s private portfolio equity flows already exert an influence on global equity markets, and this channel is likely to strengthen in the future.



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