Measuring China's monetary sterilization and autonomy in the era of globalization: 1995–2005 |
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Authors: | Ying Wu |
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Affiliation: | Department of Economics and Finance, Perdue School of Business, Salisbury University, Salisbury, MD 21801, USA;School of Advanced International Studies of the Johns Hopkins University, 40126 Bologna, Italy |
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Abstract: | This paper provides a cointegration analysis of incomplete monetary sterilization and autonomy in China when both financial controls and the exchange rate peg exist. According to an estimated long-run equilibrium relation, only 35 cents are sterilized for a yuan of foreign-exchange reserve that flows into China. In response to the movement in foreign-exchange reserves, M2 proves more endogenous than M1; and in the M2 elasticity model, as the forecast horizon extends, the domestic-credit component of the monetary base exhibits its significant endogeneity with respect to the foreign-asset component, whereas the endogeneity of the foreign-asset component also rises with respect to M2. |
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