Essays on Financial Market, Monetary Policy, and International Capital Flows
Open Access DepositedThis dissertation consists of three independent essays on Financial Market, Monetary Policy, and International Capital Flows. Chapter 1 aims to deepen our understanding of how accommodative monetary policy affects investor risk perceptions in the corporate bond market. “Low for long” interest rate and other accommodative monetary policies increase risk-taking and introduce medium- and long term macro-financial vulnerabilities. This study analyzes the effects of the People’s Bank of China’s monetary policy announcements on the prices of domestic corporate bonds. By leveraging high-frequency co-movements in financial asset prices and employing a Bayesian structural vector autoregression (BSVAR) model, I distinguish the market’s reaction to the central bank’s key policy announcements into monetary and non-monetary news categories. Using a dataset comprising 16,738 corporate bonds issued by 2,711 non-financial firms between 2010 and 2020, I find the identified monetary news significantly impacts bond pricing, accounting for approximately one-quarter of the price movements within a brief analysis window. Subsequent analysis investigates whether this impact differs across various credit risk categories, as determined by bond ratings. The results indicate a significant increase in market risk appetite following the central bank's easing measures, with riskier bonds outperforming safer ones. These findings highlight critical considerations for financial stability and macroprudential policy. Chapter 2 investigates the relationship between future policy expectations and their immediate impact on the current economy. It particularly focuses on the role of “forward guidance” in shaping interest rate expectations and macroeconomic conditions. Using a small-scale New Keynesian Model, this chapter theorizes the connections between policy expectations and economic outcomes, laying the groundwork for empirically investigating these dynamics. It leverages economic forecast survey data and a theoretical framework to construct an empirical structural Vector Autoregression (VAR) model. This model is designed to evaluate the impact of anticipated policy shifts on economic output and inflation. The findings demonstrate that expectations of policy tightening in the forthcoming year result in rapid and significant increases in both prices and economic activity. This study highlights the pivotal role of expectations in determining the state of the economy and points to the growing significance of central banks' management of policy expectations as a tool for influencing economic conditions. Chapter 3 investigates China's engagement with international capital markets between 1850 and 1930, a period marked by significant political and economic transitions from the Qing Dynasty to the Republican era. It aggregates China's individual loan, bond, and share data to show a bigger picture of China's international borrowing during this period. It documents the characteristics of China's international borrowing, classifying the issuers and the purposes of borrowing. Furthermore, it explores the drivers of China's international borrowing, including the impacts of war indemnities, trade deficits, and the broader forces of financial globalization. The study examines the evolution of China's international borrowing, its participation in global financial systems, and the connections between trade. The research highlights China's use of foreign loans for various purposes, underscoring the complications of international borrowing and its implications for the country's financial sovereignty and economic development.
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