IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Hot Money Inflows in China : How the People's Bank of China Took up the Challenge

Listed author(s):
  • Vincent Bouvatier

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://halshs.archives-ouvertes.fr/halshs-00111153/document
Download Restriction: no

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00111153.

as
in new window

Length:
Date of creation: Feb 2006
Publication status: Published in Cahiers de la Maison des Sciences Economiques 2006.11 - ISSN 1624-0340. 2006
Handle: RePEc:hal:cesptp:halshs-00111153
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00111153
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as
in new window


  1. Guonan Ma & Corrinne Ho & Robert N McCauley, 2004. "The markets for non-deliverable forwards in Asian currencies," BIS Quarterly Review, Bank for International Settlements, June.
  2. Woo, Wing Thye, 2002. "Some unorthodox thoughts on China's unorthodox financial sector," China Economic Review, Elsevier, vol. 13(4), pages 388-393, December.
  3. Dufour, Jean-Marie & Pelletier, Denis & Renault, Eric, 2006. "Short run and long run causality in time series: inference," Journal of Econometrics, Elsevier, vol. 132(2), pages 337-362, June.
  4. Fung, Hung-Gay & LEUNG, Wai K. & Zhu, Jiang, 2004. "Nondeliverable forward market for Chinese RMB: A first look," China Economic Review, Elsevier, vol. 15(3), pages 348-352.
  5. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
  6. 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.
  7. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
  8. 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.
  9. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  10. repec:cto:journl:v:21:y:2001:i:1:p:19-41 is not listed on IDEAS
  11. L. Wade, 1988. "Review," Public Choice, Springer, vol. 58(1), pages 99-100, July.
  12. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
  13. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
  14. Cheung, Yin-Wong & Chinn, Menzie D. & Fujii, Eiji, 2006. "The Chinese economies in global context: The integration process and its determinants," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 128-153, March.
  15. Jean-Marie Dufour & Eric Renault, 1998. "Short Run and Long Run Causality in Time Series: Theory," Econometrica, Econometric Society, vol. 66(5), pages 1099-1126, September.
  16. Eichengreen, Barry, 2004. "Monetary and Exchange Rate Policy in Korea: Assessments and Policy Issues," CEPR Discussion Papers 4676, C.E.P.R. Discussion Papers.
  17. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
  18. Morris Goldstein & Nicholas R. Lardy, 2005. "China's Role in the Revived Bretton Woods System: A Case of Mistaken Identity," Working Paper Series WP05-2, Peterson Institute for International Economics.
  19. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2004. "Financial development and the instability of open economies," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1077-1106, September.
  20. Eswar S Prasad, 2004. "China's Growth and Integration into the World Economy; Prospects and Challenges," IMF Occasional Papers 232, International Monetary Fund.
  21. Rudger Dornbusch & Ilan Goldfajn & Rodrigo O. Valdés, 1995. "Currency Crises and Collapses," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 219-294.
  22. Lu, Ding, 2004. "China's capability to control its exchange rate," China Economic Review, Elsevier, vol. 15(3), pages 343-347.
  23. Eichengreen, Barry, 2004. "Chinese Currency Controversies," CEPR Discussion Papers 4375, C.E.P.R. Discussion Papers.
  24. repec:hrv:faseco:30728041 is not listed on IDEAS
  25. Jeronimo Zettelmeyer & Olivier D Jeanne, 2002. "“Original Sin,” Balance Sheet Crises, and the Roles of International Lending," IMF Working Papers 02/234, International Monetary Fund.
  26. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
  27. Eswar S Prasad & Qing Wang & Thomas Rumbaugh, 2005. "Putting the Cart Before the Horse? Capital Account Liberalization and Exchange Rate Flexibility in China," IMF Policy Discussion Papers 05/1, International Monetary Fund.
  28. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 33(1), pages 125-132.
  29. Matthew Higgins & Thomas Klitgaard, 2004. "Reserve accumulation: implications for global capital flows and financial markets," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Sep).
  30. John G. Fernald & Oliver D. Babson, 1999. "Why has China survived the Asian crisis so well? What risks remain?," International Finance Discussion Papers 633, Board of Governors of the Federal Reserve System (U.S.).
  31. Tung, Chen-Yuan & Baker, Sam, 2004. "RMB revaluation will serve China's self-interest," China Economic Review, Elsevier, vol. 15(3), pages 331-335.
  32. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  33. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
  34. Litterman, Robert B, 1983. "A Random Walk, Markov Model for the Distribution of Time Series," Journal of Business & Economic Statistics, American Statistical Association, vol. 1(2), pages 169-173, April.
  35. Bruce C. Greenwald & Joseph E. Stiglitz, 1990. "Macroeconomic Models with Equity and Credit Rationing," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 15-42 National Bureau of Economic Research, Inc.
  36. Guonan Ma & Ben S.C. Fung, 2002. "China's asset management corporations," BIS Working Papers 115, Bank for International Settlements.
  37. Zhang Xiaopu, 2003. "Capital account management and its outlook in China," BIS Papers chapters,in: Bank for International Settlements (ed.), China's capital account liberalisation: international perspective, volume 15, pages 19-24 Bank for International Settlements.
  38. Guonan Ma & Robert McCauley, 2003. "Opening China’s capital account amid ample dollar liquidity," BIS Papers chapters,in: Bank for International Settlements (ed.), China's capital account liberalisation: international perspective, volume 15, pages 25-34 Bank for International Settlements.
  39. Chen, Xiaogang & Skully, Michael & Brown, Kym, 2005. "Banking efficiency in China: Application of DEA to pre- and post-deregulation eras: 1993-2000," China Economic Review, Elsevier, vol. 16(3), pages 229-245.
  40. Bart Hobijn & Philip Hans Franses & Marius Ooms, 2004. "Generalizations of the KPSS-test for stationarity," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 58(4), pages 483-502.
  41. Gunter, Frank R., 2004. "Capital flight from China: 1984-2001," China Economic Review, Elsevier, vol. 15(1), pages 63-85, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:halshs-00111153. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.