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China's Capital Controls and Interest Rate Parity: Experience during 1999 - 2010 and Future Agenda for Reforms

Author

Listed:
  • Ichiro Otani

    (Economic Policy Consultant)

  • Tomoyuki Fukumoto

    (Bank of Japan)

  • Yosuke Tsuyuguchi

    (Bank of Japan)

Abstract

This paper reviews the evolution of China's capital controls over the past decade, estimates their strength, assesses their effectiveness in influencing capital flows at a macro level, and draws policy implications for the financial market reforms in the coming years. While capital controls drove a wedge between the domestic market and the market abroad, capital flows in both directions have been rapidly increasing. This implies that, in order to deal with increasing volume of capital flows in the coming years, it is important for the authorities to keep improving the infrastructure for monitoring and assessing capital flows.

Suggested Citation

  • Ichiro Otani & Tomoyuki Fukumoto & Yosuke Tsuyuguchi, 2011. "China's Capital Controls and Interest Rate Parity: Experience during 1999 - 2010 and Future Agenda for Reforms," Bank of Japan Working Paper Series 11-E-8, Bank of Japan.
    • Handle: RePEc:boj:bojwps:11-e-8
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    File URL: http://www.boj.or.jp/en/research/wps_rev/wps_2011/data/wp11e08.pdf
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    References listed on IDEAS

    as
    1. Eswar Prasad & Shang-Jin Wei, 2007. "The Chinese Approach to Capital Inflows: Patterns and Possible Explanations," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 421-480, National Bureau of Economic Research, Inc.
    2. Sebastian Edwards, 2007. "Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences," NBER Books, National Bureau of Economic Research, Inc, number edwa06-1, March.
    3. Nicholas Lardy & Patrick Douglass, 2011. "Capital Account Liberalization and the Role of the Renminbi," Working Paper Series WP11-6, Peterson Institute for International Economics.
    4. Kumiko Okazaki & Tomoyuki Fukumoto, 2011. "Macro-financial Linkage and Financial Deepening in China after the Global Financial Crisis," IMES Discussion Paper Series 11-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
    5. Guonan Ma & Robert N. McCauley, 2007. "Do China's capital controls still bind? Implications for monetary autonomy and capital liberalisation," BIS Working Papers 233, Bank for International Settlements.
    6. Sebastian Edwards, 2007. "Introduction to "Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences"," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 1-18, National Bureau of Economic Research, Inc.
    7. Mr. Eswar S Prasad & Mr. Qing Wang & Mr. Thomas Rumbaugh, 2005. "Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China," IMF Policy Discussion Papers 2005/001, International Monetary Fund.
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    Cited by:

    1. Glick, Reuven & Hutchison, Michael, 2013. "China's financial linkages with Asia and the global financial crisis," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 186-206.
    2. Kristina Spantig, 2012. "International monetary policy spillovers in an asymmetric world monetary system - The United States and China," Global Financial Markets Working Paper Series 2012-33, Friedrich-Schiller-University Jena.
    3. Kristina Spantig, 2015. "International monetary policy spillovers—can the RMB and the euro challenge the hegemony of the US dollar?," Asia Europe Journal, Springer, vol. 13(4), pages 459-478, December.
    4. Ming Zhang & Xiaofen Tan, 2015. "Vanishing of China's Twin Surpluses and Its Policy Implications," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(1), pages 101-120, January.
    5. Liu, Yan & Chang, Hsu-Ling & Su, Chi-Wei, 2013. "Do real interest rates converge across East Asian countries based on China?," Economic Modelling, Elsevier, vol. 31(C), pages 467-473.

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    More about this item

    Keywords

    Capital controls; Interest Rate Parity; Financial Market Reform;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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