Hot money inflows in China : How the people's bank of China took up the challenge
Abstract
This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result.Download Info
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Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number bla06011.Length: 39 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:mse:wpsorb:bla06011
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Keywords: Hot money inflows; domestic credit; VECM; Granger causality.;Other versions of this item:
- Vincent Bouvatier, 2006. "Hot Money Inflows in China : How the People's Bank of China Took up the Challenge," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00111153, HAL.
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-03-11 (All new papers)
- NEP-CBA-2006-03-11 (Central Banking)
- NEP-CNA-2006-03-11 (China)
- NEP-FMK-2006-03-11 (Financial Markets)
- NEP-IFN-2006-03-11 (International Finance)
- NEP-MAC-2006-03-11 (Macroeconomics)
- NEP-MON-2006-03-11 (Monetary Economics)
- NEP-SEA-2006-03-11 (South East Asia)
- NEP-TRA-2006-03-11 (Transition Economics)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Reuven Glick & Michael Hutchison, 2008.
"Navigating the trilemma: capital flows and monetary policy in China,"
Working Paper Series
2008-32, Federal Reserve Bank of San Francisco.
- Glick, Reuven & Hutchison, Michael, 2009. "Navigating the trilemma: Capital flows and monetary policy in China," Journal of Asian Economics, Elsevier, vol. 20(3), pages 205-224, May.
- Reuven Glick & Michael Hutchison, 2008. "Navigating the Trilemma: Capital Flows and Monetary Policy in China," Working Papers 252008, Hong Kong Institute for Monetary Research.
- Gunther Schnabl, 2011. "The role of the chinese dollar peg for macroeconomic stability in China and the world economy," Global Financial Markets Working Paper Series 13-2010, Friedrich-Schiller-University Jena.
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