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Crisis, Capital Controls and Covered Interest Parity: Evidence from China in Transformation

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  • Jinzhao Chen

    (PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - Ecole des Ponts ParisTech - Ecole normale supérieure de Paris - ENS Paris - Institut national de la recherche agronomique (INRA), EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

Abstract

This 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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Bibliographic Info

Paper provided by HAL in its series Working Papers with number halshs-00660654.

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Date of creation: 17 Jan 2012
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Handle: RePEc:hal:wpaper:halshs-00660654

Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00660654
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Related research

Keywords: Covered Interest Parity ; Capital Control ; China ; Threshold Autoregressive model ; GARCH effect ; Financial Crisis;

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  16. Holmes, Mark J., 2001. "New Evidence on Real Exchange Rate Stationarity and Purchasing Power Parity in Less Developed Countries," Journal of Macroeconomics, Elsevier, vol. 23(4), pages 601-614, October.
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