Crisis, Capital Controls and Covered Interest Parity: Evidence from China in Transformation
AbstractThis paper aims to investigate the intensity and the effectiveness of the capital controls in China from 2003 to 2010, with special attention to the period of financial turbulence that erupted in the summer of 2007. We employ a two-regime threshold autoregressive model to study the Renminbi yield differential between the onshore interest rate and its non-deliverable forward (NDF)-implied offshore interest rate. We find that the de facto intensity of capital controls measured by the threshold increases over time, even during the period of financial turbulence. Moreover, a slightly lower speed of adjustment to the threshold implies that the capital controls are effective in this context.
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Date of creation: 17 Jan 2012
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Covered Interest Parity ; Capital Control ; China ; Threshold Autoregressive model ; GARCH effect ; Financial Crisis;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-IFN-2012-01-25 (International Finance)
- NEP-TRA-2012-01-25 (Transition Economics)
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