Research: "The international transmission of Chinese monetary policy and the commodity channel"

Speaking of the international effects of national stimuli...

From VoxEU, March 3: 

Authors

Fabrizio Ferriani
Deputy Head of International Financial Markets and Commodity Division Bank Of Italy

Andrea Gazzani
Senior Economist Bank Of Italy

Chinese monetary policy significantly affects global economic activity and inflation through a real transmission channel that crucially propagates via commodity prices. This column shows that the intensive use of commodities in Chinese infrastructure investment explains the strong yet delayed response of industrial metals and energy prices. A sizeable portion of inflationary spillovers to foreign countries (about 70% for advanced economies) is directly transmitted via commodity prices due to dependence on commodity imports. Financing conditions in commodity-exporting emerging economies are also greatly affected by the commodity channel of Chinese monetary policy.

Despite the rise of China as a leading global economy (Baldwin 2025), Chinese monetary policy is still a relatively underexplored subject, especially from an international perspective. Several factors hinder the enhancement of our knowledge in this field, such as the availability of high-quality Chinese official data (Fernald et al. 2021, Barcelona et al. 2022, Chen et al. 2024) and, even more crucially, the peculiar institutional monetary policy framework where the quantity of money, rather than the interest rate, was the only intermediate monetary policy tool until 2017.

In a recent paper (Ferriani and Gazzani 2025), we examine how Chinese monetary policy propagates through the global economy, taking into account the specific institutional features of its monetary framework. We find that Chinese monetary policy is propagated at the international level through the commodity channel, in line with China’s prominent role as a commodity consumer (Figure 1).

Figure 1 Share of Chinese commodity consumption over global consumption

Sources: Author’s elaboration on data from Statistical Review of Energy, World Bank, IMF, LSEG.

The macroeconomic impacts of Chinese monetary policy
We leverage vector autoregressive (VAR) models and the monetary policy shocks introduced by Chen et al. (2018, 2023) to investigate the macroeconomic impacts of Chinese monetary policy both domestically and internationally. The exogenous component of monetary policy is identified through deviations from a nonlinear Taylor rule in which the Chinese central bank determines money growth as a function of the annual GDP growth targets set by the government. The central bank responds more to a negative output gap with respect to the target than to a positive gap.

Domestically, Chinese monetary policy depresses both output and inflation and intensely affects commodity-intensive infrastructure investment....

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