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Measuring China's monetary sterilization and autonomy in the era of globalization: 1995-2005

  • Wu, Ying
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This paper provides a cointegration analysis of incomplete monetary sterilization and autonomy in China when both financial controls and the exchange rate peg exist. According to an estimated long-run equilibrium relation, only 35 cents are sterilized for a yuan of foreign-exchange reserve that flows into China. In response to the movement in foreign-exchange reserves, M2 proves more endogenous than M1; and in the M2 elasticity model, as the forecast horizon extends, the domestic-credit component of the monetary base exhibits its significant endogeneity with respect to the foreign-asset component, whereas the endogeneity of the foreign-asset component also rises with respect to M2.

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Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 20 (2009)
Issue (Month): 3 (May)
Pages: 336-347

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Handle: RePEc:eee:asieco:v:20:y:2009:i:3:p:336-347
Contact details of provider: Web page: http://www.elsevier.com/locate/asieco

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  1. Ramon Moreno, 1996. "Intervention, sterilization, and monetary control in Korea and Taiwan," Economic Review, Federal Reserve Bank of San Francisco, pages 23-33.
  2. Ronald I. McKinnon, 2005. "China's New Exchange Rate Policy: Will China Follow Japan into a Liquidity Trap?," Discussion Papers 05-002, Stanford Institute for Economic Policy Research.
  3. Qiao Yu & Ping Xie, 1999. "Money Aggregates Management: Problems And Prospects In China'S Economic Transition," Contemporary Economic Policy, Western Economic Association International, vol. 17(1), pages 33-43, 01.
  4. repec:pri:cepsud:98chow is not listed on IDEAS
  5. Eswar Prasad & Shang-Jin Wei, 2005. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Working Papers 11306, National Bureau of Economic Research, Inc.
  6. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, December.
  7. Loren Brandt & Xiaodong Zhu, 2000. "Redistribution in a Decentralized Economy: Growth and Inflation in China under Reform," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 422-451, April.
  8. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb, pages -.
  9. John Greenwood, 2008. "The Costs and Implications of PBC Sterilization," Cato Journal, Cato Journal, Cato Institute, vol. 28(2), pages 205-217, Winter.
  10. Marvin Goodfriend & Eswar Prasad, 2007. "A Framework for Independent Monetary Policy in China," CESifo Economic Studies, CESifo, vol. 53(1), pages 2-41, March.
  11. Sung Yeung Kwack, 2001. "An Empirical Assessment Of Monetary Policy Responses To Capital Inflows In Asia Before The Financial Crisis," International Economic Journal, Taylor & Francis Journals, vol. 15(1), pages 95-113.
  12. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
  13. Gregory Chow & Yan Shen, 2004. "Money, Price Level and Output in the Chinese Macro Economy," Working Papers 104, Princeton University, Department of Economics, Center for Economic Policy Studies..
  14. Lutkepohl, Helmut & Reimers, Hans-Eggert, 1992. "Impulse response analysis of cointegrated systems," Journal of Economic Dynamics and Control, Elsevier, vol. 16(1), pages 53-78, January.
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