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Capital Flows, Sterilization, and Macro-Prudential Policy in China

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  • Shuiqing Yang

Abstract

This article estimates the sterilization coefficients of the subcomponents of reserves in China over time with recursive regressions. The results suggest that People’s Bank of China tended to sterilize the more fluctuating components of capital inflows: FDI inflows received little attention, while non-FDI and current account had been heavily sterilized. After including the subcomponents of non-FDI into the empirical model, the results demonstrate that issuing bonds was successful in sterilization intervention till 2007Q2, while the effectiveness of sterilization policies was limited since then, resulting in an increase in monetary supply. The excessive money did not flow into the circulation and had limited effects on stimulating the real economy.

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  • Shuiqing Yang, 2016. "Capital Flows, Sterilization, and Macro-Prudential Policy in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(8), pages 1797-1812, August.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:8:p:1797-1812
    DOI: 10.1080/1540496X.2016.1148026
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    Cited by:

    1. Krittika Banerjee & Ashima Goyal, 2021. "Current account imbalances: Exploring role of domestic and external factors for large emerging markets," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-001, Indira Gandhi Institute of Development Research, Mumbai, India.

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