The Growing Centrality of China in the Global Financial System
Abstract
We study dynamically network centrality with a financial application applied to spatiotemporal high-frequency data. The centrality of the United States (U.S.) in the global financial system is taken for granted, but its response to recent political and epidemiological events has suggested that China is now comparable. Using minute-by-minute spatiotemporal data from 2012 to 2020 on the financial performance of twelve country-specific exchange-traded funds, we derived daily snapshots of the global financial network and analyzed them for the centrality and connectedness of each country in our sample. We use three separate methods to quantify the contagion between international markets: (i) vector autoregression (VAR) estimation; (ii) machine-learning technique of least absolute shrinkage and selection operator (LASSO) estimation; and (iii) total variance decomposition. We find evidence that the U.S. was central to the global financial system into 2018, but that the U.S.-China trade war of 2018 - 2019 diminished its centrality, and the Covid-19 outbreak of 2019 - 2020 increased the centrality of China. These indicators may be the first signals that the financial system is moving from a unipolar to a bipolar world.
- Publication:
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AGU Fall Meeting Abstracts
- Pub Date:
- December 2020
- Bibcode:
- 2020AGUFMIN020..03S
- Keywords:
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- 1630 Impacts of global change;
- GLOBAL CHANGE;
- 1910 Data assimilation;
- integration and fusion;
- INFORMATICS;
- 4333 Disaster risk analysis and assessment;
- NATURAL HAZARDS