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Chinese monetary policy spillovers on its international portfolio investment flows

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  • Liu, Zixi

Abstract

This paper examines Chinese monetary policy spillovers on its international portfolio investment flows with a factor-augmented vector autoregression (FAVAR) model. The paper extracts a FPI factor from certain time series to measure monthly foreign portfolio investment flows (FPI). Four Chinese monetary policies are considered: central-bank target policy rate; required reserve ratio; M2; banks' loans. The robust and significant results show that interest rates and banks' loans have significant impact on Chinese international portfolio investment flows, while changes in reserve requirements are not effective. It reveals the increasingly important effects of Chinese monetary policies on its cross-border portfolio investment flows following decades' capital account openness and the reform of interest rate liberalization in China, which indicates that Chinese monetary policy is approaching to a market-based framework.

Suggested Citation

  • Liu, Zixi, 2024. "Chinese monetary policy spillovers on its international portfolio investment flows," Journal of International Money and Finance, Elsevier, vol. 141(C).
    • Handle: RePEc:eee:jimfin:v:141:y:2024:i:c:s0261560623002085
    DOI: 10.1016/j.jimonfin.2023.103007
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    Keywords

    Monetary policy; International portfolio investment flows; China; FAVAR;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • 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

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