China’s fiscal stimulus, global financial intermediaries, and international spillovers

摘要

In this paper, we investigate the international spillovers of China’s fiscal policy and identify the financial channel as a pivotal transmission mechanism. Using monthly data from 2001 to 2019 and a sign-restricted Bayesian SVAR model, we document three stylized facts: First, China’s fiscal expansion crowds in domestic consumption and investment while inducing a mild trade deficit. Second, it triggers a persistent real appreciation of the Renminbi, despite systematic monetary accommodation. Third, it generates positive spillovers to the global economy, boosting commodity prices, output, and asset prices. These findings are robust when the global risky-asset factor is replaced with alternative measures of global bank balance-sheet activity. To rationalize these patterns, we develop a two-country New Keynesian model featuring financially constrained global intermediaries. We demonstrate that a balance-sheet channel underpins these positive spillovers: fiscal expansion, supported by accommodative monetary policy, improves global intermediaries’ net worth, relaxes their leverage constraints, and lowers credit spreads, culminating in a “prosper-thy-neighbor” expansion. This mechanism acts as an international financial accelerator, amplifying the domestic stimulus, yielding a fiscal multiplier above one and generating a sizable foreign spillover multiplier. Counterfactual analysis shows that removing this financial channel reverts the economy to a “beggar-thy-neighbor” outcome where foreign output declines. Furthermore, we show that in a monetary union, these positive spillovers are amplified when the common central bank accommodates the fiscal expansion, leading to larger stimulus effects for both countries.