Impact Of The Macroeconomic Factors On Liquidity Synchronization: Evidence From China

Abstract

This study explores the impact of macroeconomic factors on liquidity synchronization in China. Using a comprehensive dataset spanning from 2012 to 2023, we analyze the relationship between key macroeconomic variables—such as monetary policy, exchange rate volatility, private credit to GDP, financial openness and stock market development and the synchronization of liquidity across various asset markets in China. The findings suggest that macroeconomic factors significantly influence liquidity synchronization, with GDP growth and interest rate changes having the most pronounced effects. The study contributes to the existing literature by providing empirical evidence from an emerging market context, highlighting the complexities of liquidity dynamics in China’s evolving financial landscape. The results have important implications for policymakers and market participants, suggesting the need for transparent regulatory frameworks, strategic monetary policies, and investor education to enhance market stability and liquidity synchronization in the face of shifting macroeconomic conditions. Future studies could focus on the specific role of government intervention and policies in shaping liquidity synchronization and market efficiency, as China's financial markets are heavily influenced by regulatory changes. Given that macroeconomic factors like interest rates and inflation influence liquidity, coordination between monetary policy and fiscal policy is vital. Ensuring that policies align to manage liquidity effectively could mitigate systemic risks and enhance market stability.

Keywords: Macroeconomic Factors, Liquidity Synchronization, Financial Markets, Monetary Policy, Exchange Rate Volatility, Financial Openness, Stock Market Development