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China’s capital controls – Through the prism of covered interest differentials

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  • Herrala, Risto

    ()
    (BOFIT)

  • Cheung, Yin-Wong

    ()
    (BOFIT)

Abstract

We study the renminbi (RMB) covered interest differential – an indicator of the effectiveness of capital controls. It is found that the differential is not shrinking over time and, in fact, appears larger after the global financial crisis than before. That is, capital controls in China are still substantial and effective. In addition to exchange rate changes and volatilities, the RMB covered interest differential is affected by credit market tightness indicators. The marginal explanatory power of these macroeconomic factors, however, is small relative to the autoregressive component and the dummy variables that capture changes in China’s policy.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 22/2013.

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Length: 35 pages
Date of creation: 27 Aug 2013
Date of revision:
Handle: RePEc:hhs:bofitp:2013_022

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Keywords: NDF implied RMB interest rate; capital controls; asymmetric response; macro determinants; credit market tightness;

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References

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  1. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Department of Economics, Working Paper Series qt5pv1j341, Department of Economics, UC Santa Cruz.
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  5. Yin-Wong Cheung & Risto Herrala, 2013. "China's Capital Controls - Through the Prism of Covered Interest Differentials," Working Papers 142013, Hong Kong Institute for Monetary Research.
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Cited by:
  1. Yin-Wong Cheung & Risto Herrala, 2013. "China's Capital Controls - Through the Prism of Covered Interest Differentials," CESifo Working Paper Series 4377, CESifo Group Munich.
  2. Cheung, Yin-Wong, 2014. "The Role of Offshore Financial Centers in the Process of Renminbi Internationalization," ADBI Working Papers 472, Asian Development Bank Institute.

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