EFFICACY OF CHINA'S CAPITAL CONTROLS: EVIDENCE FROM PRICE AND FLOW DATA

Abstract.   The paper argues that China's capital controls remain substantially binding. This has allowed the Chinese authorities to retain some degree of short-term monetary autonomy, despite the fixed exchange rate to July 2005. Although the Chinese capital controls have not been watertight, we find sustained and significant gaps between onshore and offshore renminbi interest rates and persistent dollar/renminbi interest rate differentials during the period of a de facto dollar peg. While some cross-border flows do respond to market expectations and relative yields, they have not been large enough to equalise onshore and offshore renminbi yields.     

Capital Flight: China's Experience

We study the empirical determinants of China's capital flight. In addition to the covered interest differential, our empirical exercise includes a rather exhaustive list of macroeconomic variables and a few institutional factors. Overall, our regression exercise shows that China's capital flight is quite well explained by its own history and covered interest differentials. The other possible determinants offer relatively small additional explanatory power. It is also found that China's capital flight responds differently to the components of covered interest differentials and to the positive and negative components of these variables. The response pattern, however, depends on the choice of data frequency. The general impression is that the monthly results are more intuitive than the quarterly ones.     

开放资本市场与国家金融安全

要成为一个经济强国，其资本市场一定要开放。资本市场一开放，将对该国的金融安全产生威胁。资本市场开放使国家减弱了对汇率、利率的调节能力。我国的国民经济高速发展，国际收支状况良好，人民币汇率稳定，证券市场有了一定的发展，因此具有一定的抗冲击能力。但目前，我国在资本市场抗冲击能力上仍存在不少问题。要提高资本市场抗冲击能力，就要选择有限制的直接开放模式。     

通货膨胀、汇率波动与货币政策——基于符号约束的贝叶斯VAR模型实证研究

通过构建通货膨胀形成的理论模型,本文运用符号约束的贝叶斯VAR方法探讨通货膨胀和汇率波动对产出增长的影响。结果发现：实际利率对通货膨胀和人民币升值冲击均有较大的响应,且受通货膨胀的影响更大,即稳定价格的货币政策比稳定汇率的政策更加有效;通货膨胀冲击下,实际利率在长期有所上升,但并未达到控制通货膨胀的效果,实际利率偏低阻碍了货币政策效果的发挥;人民币升值对产出增长具有较大的负面影响,对通货膨胀具有负向）中击,但由于油价上涨的原因,人民币升值并没有降低通货膨胀水平。     

利率平价关系不稳定条件下短期资本流动机制的运行

现代利率平价理论分无偏差预测理论与有偏差预测理论,两者对非抵补利率平价是否成立的观点截然相反。大量实证研究更多地表明在当今各种经济基本面、政策面及其不确定性预期等因素的影响下,利率平价关系日益呈现出不稳定性,在短期资本套利和套汇机制作用下,当期和未来短期资本流动方向均有不同变化。近几年来,我国短期资本流动发生较大波动,当前存在着短期资本重新转为大量流入的动向,政府需加强短期资本流动监控,以防遭受冲击。     

略论人民币汇率制度改革与国有商业银行风险

自2005年7月21日实行人民币汇率制度改革以来,人民币对美元一直呈单边升值的趋势,截至目前已升值10％。基于此,对国有商业银行在人民币升值过程中存在的国有商业银行外汇资本面临贬值,资产与负债的汇率风险敞口,人民币汇率浮动频率和区间加大,结售汇等中间业务的汇率风险加大等一些汇率风险进行了探讨。     

Internationalisation of the Renminbi as an Investing and a Funding Currency: Analytics and Prospects

This paper develops a three‐currency model to study the determinants of the demand for assets and liabilites denominated in an international currency and to shed light on the prospects for the renminbi as a budding international currency. We show that interest rate differentials would be only one of the factors shaping the renminbi's position, while other factors, including the correlation between foreign countries' economic growth and their bilateral exchange rates against the renminbi, and the correlation between exchange rates of the renminbi with other international currencies, would also be important. A broad interpretation of these findings is that the renminbi will likely be attractive to investors from high‐income economies and fund‐raisers from emerging market economies.     

Capital controls and welfare with cross-border bank capital flows

This performance of time-varying capital controls on cross-border bank borrowing is studied in an open-economy, dynamic stochastic general equilibrium model with financial frictions and imperfect capital mobility. The model is parameterized for a middle-income country and replicates the stylized facts associated with a drop in world interest rates—capital inflows, real appreciation, credit boom, asset price pressures, and output expansion. A capital controls rule, which is fundamentally macroprudential in nature, is defined in terms of changes in bank foreign borrowing. The welfare-maximizing rule is established numerically and compared to the Ramsey policy. The analysis is then extended to solve jointly for optimal countercyclical reserve requirements and capital controls rules. The results show that the implementation of a countercyclical credit-based reserve requirement rule induces less reliance on capital controls. Thus, these two instruments are partial substitutes in maximizing welfare.     

Capital Controls,Public Debt and Currency Crises

This paper examines the possibility that, contrary to conventional wisdom, capital controls accelerate currency crises. Theoretical analysis shows that capital controls can constitute an additional burden on government budget and so bring forward the onset of crises. Since perfect capital mobility does not occur, domestic interest rates may deviate from world interest rates. High interest rates under capital controls create an additional cost of servicing outstanding domestic public debt, precipitating crises. Even though the government can delay crises with capital controls, welfare may be less than in a situation with perfect capital mobility.     

The Distorting Impact of Capital Controls

Abstract. This paper uses panel data to show that capital controls have a significant impact on international interest rate differentials. Various types of controls can be distinguished within the data. The analysis shows that the aforementioned effects of capital controls on interest rates are especially strong in the case of capital import controls on portfolio capital; the implementation of these controls has been suggested in the wake of the Asian Crisis to prevent further crises. The results presented herein contradict the hypothesis that capital controls can achieve a restructuring of the maturity of capital inflows without a distortion in international capital allocation.     

China's Capital and ‘Hot’ Money Flows: An Empirical Investigation

We examine time‐series characteristics of China's capital flows during 1998–2014. More specifically, we employ Kalman filtering state‐space models to gauge the relative importance of permanent and transitory components in China's overall foreign direct investment (FDI), equity, bond, other investment and bank credit flows. Our results show that only in the case of FDI are both gross inflow and net flow dominated by a permanent stochastic level, suggesting that this source of capital is largely permanent. Incorporating covariates into the state‐space models, we find that a larger difference between onshore and offshore renminbi interest rates encourages capital inflows that are dominated by a transitory component. Greater global risk perception, proxied by S&P 500's volatility index, in contrast, discourages them. These covariates imply that capital control may not be effective in stemming volatile and speculative flows. Our results on bilateral capital flows between China and the USA also suggest that these flows are less persistent and more volatile during 1998–2014 than previously found based on 1988–1997 data. Our results bear important policy implications as China engages in further reforms in its domestic financial system and greater integration with the world financial system.     

中国资本管制有效性动态研究:1982-2008

文章综合利用储蓄一投资相关性检验法、Edwayds-Kahn模型法、资本管制强度测度以及抵补利率平价4种方法分别从实体经济、货币经济、法律框架以及短期资本套利动机等角度对1982-2008年期间我国资本管制的有效性进行了评估,并侧重讨论了现阶段我国资本管制是否失效的问题.研究结论显示:自1982年以来,我国的资本管制政策短期内基本有效,但随着国内经济的进一步开放和管制政策的逐步放开,资本流动性逐渐提高,资本管制的有效性呈下降趋势;2007年以来虽然存在大量短期资本流入流出的现象,但我国的资本管制仍然对国际资本流动具有明显的抑制作用.     

GLOBALIZATION AND CHINA'S ECONOMIC DEVELOPMENT

Abstract.  This paper studies the nature and implications of globalization in China's economic development since 1978. It covers the four aspects of the flows of goods, capital, technology/information and of people to and from China. It also analyzes the role of the exchange rate of renminbi in transmitting the effects of foreign trade and investment to the Chinese macroeconomy.     

Overnight Covered Interest Parity:Theory and Practice

This study shows, both theoretically and empirically, that in a world where capital as well as exchange markets are imperfect it is incorrect to employ mid-market rates to estimate CIP relationships. Developing and using the correct specification, we estimated covered interest parity relationships between the overnight U.S. Euro-dollar and Canadian interbank markets, for the 1986-1992 period. It was found that covered interest parity holds for both directions. However, the speed and pattern of adjustments with which potential arbitrage profits are eliminated are not symmetric between U.S. Euro-dollar and Canadian interbank markets. [GI51     

BLACK MARKET EXCHANGE RATES AND CAPITAL MOBILITY IN ASIAN ECONOMIES

This paper examines whether foreign exchange black markets have eroded the effectiveness of capital controls and contributed to an increase in the effective degree of capital mobility in a sample of Asian countries. Comparing the uncovered interest parity forecast errors between the official and black market exchange rates suggests that in those countries with more stringent capital controls, foreign exchange black markets have reached a maturity level to threaten the effectiveness of those controls.     

International tax arbitrage, tax evasion and interest parity conditions

Using a finite-horizon general equilibrium model with uncertainty and money, we characterize situations where tax arbitrage opportunities may arise for international portfolio investors in an economy with heterogeneous capital income taxation when there is some scope to evade taxes on foreign capital income. We derive tax-modified uncovered interest parity conditions and forward rates similar to the no-tax ones, but augmented by tax-induced “risk-premium” terms; covered interest parity conditions remain unaffected by the introduction of capital income taxes, a consequence of our approach of bounding tax-based arbitrage without restricting arbitrage per se.     

Capital Controls,Global Liquidity Traps,and the International Policy Trilemma*

The zero bound on interest rates introduces a new dimension to the trilemma in international policy. The openness of the international financial market might render monetary policy ineffective, even within a system of fully flexible exchange rates, because shocks that lead to a liquidity trap in one country are propagated through financial markets to other countries. However, the effectiveness of monetary policy can be restored by the imposition of capital controls. We derive the optimal response of monetary policy to a global liquidity trap in the presence of capital controls. We show that, even though capital controls might facilitate effective monetary policy, capital controls are not generally desirable in terms of welfare.     

On the Transmission Mechanism of Monetary Constraints to the Real Side of the Economy

Contrary to the predictions of the theory underlying international finance, inflows of capital triggered by financial liberalisation have neither equalised real interest rates nor increased income growth in many emerging economies. We explain this puzzle by developing a model that combines the balance‐of‐payments constraint approach to economic growth with a less stringent version of the real interest rate parity hypothesis. The model’s foundations are based on robust empirical findings or well‐established macroeconomic models. We show that a perverse combination of income elasticities of demand for imports and exports generates slow income growth and high real interest rates. As domestic income grows and imports rise faster than exports, the real exchange rate is expected to depreciate in order to clear the balance of payments (or the foreign exchange rate market). An incipient capital outflow arises and interest rates increase. Faster adjustment in capital rather than in the goods market therefore generates a higher real interest rate differential between the domestic small open‐economy and the rest of the world. The long run analysis shows that a constant degree of risk aversion implies a positive equilibrium real interest rate differential that affects economic growth. A permanent increase in default risk driven by persistent current account imbalances thus impacts on long run growth. The model’s results are illustrated with evidence from the three major Latin America economies: Argentina, Brazil and Mexico.     

农村信用社利率定价模型实证分析

利率市场化改革的核心是建立科学合理的利率定价制度。目前,多数中小金融机构特别是农村信用社,贷款定价模式比较简单粗糙,在实际执行过程中广泛存在＂一刀切＂的现象。科学合理的利率定价模型不仅要涵盖银行资金成本、风险、目标利润等,还需要考虑贷款人的对利率的承受能力并有较强的可操作性。