Research Progress on the Transmission Mechanism of the Fed's Interest Rate Cuts to the Chinese Economy

Abstract

This paper aims to systematically review the current research status on the transmission mechanism of the Federal Reserve's interest rate cuts to the Chinese economy, analyze the existing research deficiencies, and provide references for future research and suggestions for responding to the Federal Reserve's interest rate cuts. The research shows that the Federal Reserve's interest rate cuts affect the Chinese economy through seven channels: trade (co-directional changes in trade surplus and false arbitrage, "petrodollar" effect), capital flows (capital inflows and outflows and asset price fluctuations caused by interest rate differentials, constrained by capital controls), exchange rates (depending on the relative performance of the Chinese and US economies, with variable impacts on inflation and exports), commodity prices (increasing manufacturing costs and passing on to prices), asset prices (A-share valuation repair and bond market interest rate fluctuations), financial frictions (amplifying the "export decline - financing difficulty" cycle), and monetary policy (passive adjustment and space compression). Existing research has problems such as insufficient method accuracy, lack of research in emerging fields and micro-level, and lack of quantification of channel interaction. In the future, research needs to be improved, and China can balance stable growth and risk prevention through "policy coordination + expectation management".