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Central Bank Financial Strength And The Cost Of Sterilization In China

Author

Listed:
  • Ljungwall, Christer

    (China Economic Research Center)

  • Xiong, Yi

    (Peking University National School of Development, China Center for Economic Research)

  • Zou, Yutong

    (Peking University National School of Development, China Center for Economic Research)

Abstract

This paper investigates the current monetary policy regime of China’s Central Bank, the People’s Bank of China (PBoC). This is done from the specific viewpoint of PBoC financial strength and the cost of its monetary policy instruments. The result shows that PBoC is constrained by the costs of its monetary policy instruments. PBoC tend to use less costly but market-distorting instruments such as deposit interest rate cap and reserve-ratio requirements, rather than more market-oriented but more costly instruments such as central bank note issuance. These costs remain under control today, but may rise in the future as PBoC accumulates more foreign assets. This, in turn, will jeopardize the Chinese monetary authority’s capability to maintain price stability.

Suggested Citation

  • Ljungwall, Christer & Xiong, Yi & Zou, Yutong, 2009. "Central Bank Financial Strength And The Cost Of Sterilization In China," Working Paper Series 2009-8, Stockholm School of Economics, China Economic Research Center.
    • Handle: RePEc:hhs:hacerc:2009-008
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    References listed on IDEAS

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    Cited by:

    1. Zhang, Chenying, 2010. "Sterilization in China: Effectiveness and Cost," Working Papers 10-29, University of Pennsylvania, Wharton School, Weiss Center.

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    More about this item

    Keywords

    Central banking; Monetary policy; China;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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