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Opening China's Capital Account: Modeling the Capital Flow Response

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Author Info

  • James Laurenceson
  • Kam Ki Tang

Abstract

Capital account convertibility in China is on the rise. In this paper we consider the impact that removing remaining capital controls might have on the volume of China's international capital flows. Better understanding of this capital flow response can shed light on China's current degree of international financial integration, which has important implications for policy decisions such as whether China should move toward a more flexible exchange rate regime. It is also relevant to discussing the financial stability consequences of removing remaining capital controls. The main finding is that China's capital account is already quite open, thus implying a tradeoff presently exists between exchange rate stability on the one hand and monetary independence on the other. In terms of financial stability, the results generally serve to allay fears that further opening the capital account would compromise China's international payments ability or disrupt global capital flows.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/14765280601109196
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Journal of Chinese Economic and Business Studies.

Volume (Year): 5 (2007)
Issue (Month): 1 ()
Pages: 1-18

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Handle: RePEc:taf:jocebs:v:5:y:2007:i:1:p:1-18

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Related research

Keywords: JEL C LASSIFICATION : F30; F47;

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Cited by:
  1. Pornpen Sodsrichai & Sakkapop Panyanukul & Nantaporn Pongpatthananon, 2011. ""Putting All Eggs in One Basket" Thailand's Under-Investment Abroad: Impact and Explanations," Working Papers 2011-06, Economic Research Department, Bank of Thailand.
  2. Dai, Meixing, 2011. "Motivations and strategies for a real revaluation of the Yuan," MPRA Paper 30440, University Library of Munich, Germany.
  3. James S Laurenceson & Callan Windsor, 2011. "How Effective is China’s Monetary Policy? An assessment of the link between the growth of monetary aggregates and inflation during the 2000s," Discussion Papers Series 435, School of Economics, University of Queensland, Australia.

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