Does China transmit financial cycle spillover effects to the G7 countries?

Figures & data

Table 1. Database and countries list.

Variable	Measurement	Source
Credit	Credit to Private non-financial sector deflated using CPI	BIS
Interest rate	Short-term interest rate	OECD
Exchange rate	Real Effective Exchange Rate	IFS
Equity price	Share Price Index	OECD
House price	The real house prices index	OECD
Sample countries: China (CHN), Canada (CAN), France (FRA), Germany (DER), Italy (ITA), Japan (JPN), United States (US), and United Kingdom (UK).

Note: OECD, BIS, and IFS represent the Organization for Economic Co-operation and Development statistical database, Bank for International Settlements database, and International Financial Statistics of International Monetary Fund, respectively.

Source: The Authors.

Figure 1. China’s financial cycle and the long-run trend. Note: the blue line (FC) represents China’s financial cycle using the state space model and the Kalman filter method; the red line (FCT) plot China’s financial cycle long-run trend and is calculated by Hodrick-Prescott (H-P) filter with lambda = 100.

Source: The Authors.

Table 2. Characteristics of China’s financial cycles.

	Phase	Start	End	Duration	Start	End	Amplitude
1	Recession	1991Q1	1992Q3	6	−0.010	−0.038	0.027
2	Expansion	1992Q3	1995Q4	13	−0.038	0.045	0.083
3	Recession	1995Q4	1999Q2	14	0.045	−0.008	0.054
4	Expansion	1999Q2	2002Q1	11	−0.008	0.021	0.029
5	Recession	2002Q1	2005Q1	12	0.021	−0.024	0.045
6	Expansion	2005Q1	2008Q2	13	−0.024	0.035	0.059
7	Recession	2008Q2	2015Q3	29	0.035	−0.004	0.039
8	Expansion	2015Q3	2018Q4	13	−0.004	0.007	0.011
Average	Expansion			12.5			0.045
	Recession			15.25			0.041

Note: the durations of recession (expansion) are measured from peak to trough (trough to peak). The unit is quarter.

Source: The Authors.

Table 3. Unit Root Test – financial cycles of China and the G7 countries.

Augmented Dickey-Fuller test statistic
Country	CHN	CAN	FRA	GER	ITA	JPN	UK	US
t-Statistic	−3.766	−4.082	−6.530	−4.926	−4.152	−4.471	−3.907	−3.926

Note: This table summarizes results of the Augmented Dickey-Fuller (ADF) tests for a unit root for the financial cycle series of China and the G7 countries. The null hypothesis is that the series features a unit root. We do not include a constant term and a trend. The 1%, 5%, and 10% critical value for the ADF test are -2.586, -1.944, and -1.615 for a test equation.

Source: The Authors.

Figure 2. The static financial cycle spillover from China to the G7 countries.

Source: The Authors.

Figure 3. Financial cycle net spillovers from China to the G7 countries. Note: Shading denotes the financial crisis as defined by the NBER.

Source: The Authors.

Figure 4. Financial cycle spillovers from China to each of the G7 countries.

Source: The Authors.