Model Structure and the Combined Welfare and Trade Effects of China's Trade Related Policies
AbstractIn recent years, China has faced an increasing trilemmahow to maintain independent monetary policy and limit exchange rate flexibility simultaneously, while at the same time facing persistent and substantial international capital flows. This paper undertakes an empirical investigation to evaluate the effectiveness of Chinas sterilizations and capital mobility regulations, measured by the sterilization and offset coefficients respectively, using monthly data between mid 1999 and March 2009. We find that the effectiveness of Chinas sterilization is almost perfect in terms of the monetary base, while it is nearly half in light of M2, and the extent of Chinas capital mobility regulations still works but not well binds. Recursive estimation finds evidence of increasing mobility of capital flows and decreasing extent of sterilizations that may undercut Chinas ability to seek monetary autonomy and domestic currency stability simultaneously.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Trade Working Papers with number 23038.
Date of creation: Jan 2010
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Effectiveness; Capital Mobility; International Reserves; Sterilization;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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- Alice Y. Ouyang & Ramkishen S. Rajan & Thomas D. Willett, 2007.
"China as a Reserve Sink: The Evidence from Offset and Sterilization Coefficients,"
102007, Hong Kong Institute for Monetary Research.
- Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
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