BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 22/2013:
China’s capital controls – Through the prism of covered interest differentials
Risto Herrala ()
and Yin-Wong Cheung ()
Abstract: We study the renminbi (RMB) covered interest differential
– an indicator of the effectiveness of capital controls. It is found that
the differential is not shrinking over time and, in fact, appears larger
after the global financial crisis than before. That is, capital controls in
China are still substantial and effective. In addition to exchange rate
changes and volatilities, the RMB covered interest differential is affected
by credit market tightness indicators. The marginal explanatory power of
these macroeconomic factors, however, is small relative to the
autoregressive component and the dummy variables that capture changes in
China’s policy.
Keywords: NDF implied RMB interest rate; capital controls; asymmetric response; macro determinants; credit market tightness; (follow links to similar papers)
JEL-Codes: E44; F31; F32; (follow links to similar papers)
35 pages, August 27, 2013
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