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Capital controls and optimal Chinese monetary policy

Author

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  • Chun Chang
  • Zheng Liu
  • Mark M. Spiegel

Abstract

We examine optimal monetary policy under prevailing Chinese policies> – including capital controls, nominal exchange rate targets, and costly sterilization of foreign capital inflows. China’s combination of capital controls and exchange rate pegs disrupts its monetary policy, precluding adjustments that could maintain macroeconomic stability following a set of shocks that mirror its experience during the global financial crisis. However, comparing different policy regimes in a consistent DSGE framework, we find that the bulk of welfare gains achieved under full liberalization can be obtained by liberalizing either the capital account or the exchange rate. ; Previously titled: Monetary policy in a DSGE model with “Chinese Characteristics”

Suggested Citation

  • Chun Chang & Zheng Liu & Mark M. Spiegel, 2013. "Capital controls and optimal Chinese monetary policy," Working Paper Series 2012-13, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfwp:2012-13
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Monetary policy in a DSGE model with “Chinese Characteristics”
      by Christian Zimmermann in NEP-DGE blog on 2012-10-07 19:05:10

    Citations

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    Cited by:

    1. Liu, Zheng & Spiegel, Mark M. & Tai, Andrew, 2017. "Measuring the effects of dollar appreciation on Asia: A FAVAR approach," Journal of International Money and Finance, Elsevier, vol. 74(C), pages 353-370.
    2. repec:kap:openec:v:28:y:2017:i:4:d:10.1007_s11079-017-9441-4 is not listed on IDEAS
    3. repec:bla:worlde:v:39:y:2016:i:12:p:1934-1946 is not listed on IDEAS
    4. Yin-Wong Cheung & Cho-Hoi Hui & Andrew Tsang, 2017. "The RMB Central Parity Formation Mechanism after August 2015: A Statistical Analysis," Working Papers 062017, Hong Kong Institute for Monetary Research.
    5. Prasad, Eswar & Zhang, Boyang, 2015. "Distributional Effects of Monetary Policy in Emerging Market Economies," IZA Discussion Papers 9272, Institute for the Study of Labor (IZA).
    6. Fernald, John G. & Spiegel, Mark M. & Swanson, Eric T., 2014. "Monetary policy effectiveness in China: Evidence from a FAVAR model," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 83-103.
    7. repec:eee:jcecon:v:46:y:2018:i:1:p:35-52 is not listed on IDEAS
    8. repec:bof:bofitp:urn:nbn:fi:bof-201505201211 is not listed on IDEAS
    9. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls, Macroprudential Regulation,and the Bank Balance Sheet Channel," Discussion Paper Series DP2017-18, Research Institute for Economics & Business Administration, Kobe University, revised Jun 2018.
    10. repec:eee:ecmode:v:73:y:2018:i:c:p:264-278 is not listed on IDEAS
    11. Song, Zheng (Michael) & Xiong, Wei, 2018. "Risks in China’s financial system," BOFIT Discussion Papers 1/2018, Bank of Finland, Institute for Economies in Transition.
    12. Liu, Zheng & Spiegel, Mark M. & Zhang, Jingyi, 2018. "Optimal Capital Account Liberalization in China," Working Paper Series 2018-10, Federal Reserve Bank of San Francisco.
    13. repec:eee:chieco:v:46:y:2017:i:c:p:110-122 is not listed on IDEAS
    14. Löchel, H. & Packham, N. & Walisch, F., 2016. "Determinants of the onshore and offshore Chinese government yield curves," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 77-93.
    15. Guangling Liu & Fernando Garcia-Barragan, 2017. "Capital Controls and Foreign Currency Denomination," 2017 Meeting Papers 415, Society for Economic Dynamics.
    16. Pierre-Richard Agénor & Pengfei Jia, 2015. "Capital Controls and Welfare with Cross-Border Bank Capital Flows," Centre for Growth and Business Cycle Research Discussion Paper Series 212, Economics, The Univeristy of Manchester.
    17. Sánchez-Fung, José R., 2015. "Estimating the impact of monetary policy on inequality in China," BOFIT Discussion Papers 17/2015, Bank of Finland, Institute for Economies in Transition.
    18. Shigeto Kitano & Kenya Takaku, 2017. "Capital Controls and Financial Frictions in a Small Open Economy," Open Economies Review, Springer, vol. 28(4), pages 761-793, September.
    19. Chris Garbers & Guangling Liu, 2017. "Flow specific capital controls for emerging markets," Working Papers 12/2017, Stellenbosch University, Department of Economics.
    20. repec:eee:jimfin:v:86:y:2018:i:c:p:223-243 is not listed on IDEAS
    21. Chong-En Bai & Chang-Tai Hsieh & Zheng Michael Song, 2016. "The Long Shadow of a Fiscal Expansion," NBER Working Papers 22801, National Bureau of Economic Research, Inc.

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    Keywords

    Monetary policy ; Foreign exchange ; China;

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