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Capital controls and optimal Chinese monetary policy

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Author Info

  • 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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Related research

Keywords: Monetary policy ; Foreign exchange ; China;

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  1. Alessandro Barattieri & Susanto Basu & Peter Gottschalk, 2010. "Some Evidence on the Importance of Sticky Wages," Boston College Working Papers in Economics 740, Boston College Department of Economics.
  2. Evi Pappa & Zheng Liu, 2005. "Gains from International Monetary Policy Coordination: Does It Pay to Be Different?," Computing in Economics and Finance 2005 457, Society for Computational Economics.
  3. 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.
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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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