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Capital controls and optimal Chinese monetary policy

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  • Chun Chang
  • Zheng Liu
  • Mark M. Spiegel

Abstract

We examine optimal monetary policy under prevailing Chinese policies> – including capital controls, nominal exchange rate targets, and costly sterilization of foreign capital inflows. China’s combination of capital controls and exchange rate pegs disrupts its monetary policy, precluding adjustments that could maintain macroeconomic stability following a set of shocks that mirror its experience during the global financial crisis. However, comparing different policy regimes in a consistent DSGE framework, we find that the bulk of welfare gains achieved under full liberalization can be obtained by liberalizing either the capital account or the exchange rate. ; Previously titled: Monetary policy in a DSGE model with “Chinese Characteristics”

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Bibliographic Info

Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2012-13.

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Date of creation: 2013
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Handle: RePEc:fip:fedfwp:2012-13

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Keywords: Monetary policy ; Foreign exchange ; China;

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  1. Liu, Zheng & Pappa, Evi, 2008. "Gains from international monetary policy coordination: Does it pay to be different?," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 32(7), pages 2085-2117, July.
  2. Hélène Rey & Nicolas Coeurdacier, 2010. "Home bias in open economy financial macroeconomics," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  3. Alessandro Barattieri & Susanto Basu & Peter Gottschalk, 2010. "Some evidence on the importance of sticky wages," Working Papers, Federal Reserve Bank of Boston 10-11, Federal Reserve Bank of Boston.
  4. Alice Y. Ouyang & Ramkishen S. Rajan & Thomas D. Willett, 2007. "China as a Reserve Sink: The Evidence from Offset and Sterilization Coefficients," Working Papers 102007, Hong Kong Institute for Monetary Research.
  5. Emmanuel Farhi & Ivan Werning, 2012. "Dealing with the Trilemma: Optimal Capital Controls with Fixed Exchange Rates," NBER Working Papers 18199, National Bureau of Economic Research, Inc.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Monetary policy in a DSGE model with “Chinese Characteristics”
    by Christian Zimmermann in NEP-DGE blog on 2012-10-07 14:05:10

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