Is U.S. money causing Chinaʹs output?

This paper tries to answer the long-standing question of whether money causes output. Instead of focusing on domestic monetary policy and output, we analyze U.S. monetary policy and its possible effects on real output in China. Our results indicate that the main monetary instrument in the U.S., the Federal Fund Rate, Granger causes Chinaʹs output. A second monetary variable, U.S. money supply, does not seem to have a significant effect on Chinaʹs output. The results are supported by variance decompositions, which indicate that Federal Fund Rate shocks have an effect on Chinaʹs real output. The findings have important implications for policy makers in China that focus on maintaining a high and stable economic growth.