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The Influence of International Capital Flow on the Effectiveness of Chinese Monetary Policy

Author

Listed:
  • Zhaosu MENG

    (School of Economics, Ocean University of China, Qingdao, Shandong, People’s Republic of China.)

  • Wei WEI

    (School of Economics, Ocean University of China, Qingdao, Shandong, People’s Republic of China.)

  • Xiaotong LIU

    (School of Economics, Ocean University of China, Qingdao, Shandong, People’s Republic of China.)

  • Kedong YIN

    (School of Economics, Ocean University of China, Qingdao, Shandong, People’s Republic of China.)

Abstract

The effectiveness of the monetary policy in open economies could be impaired during periods of large capital inflows. This paper innovatively examines the different impacts of international capital flows for both long-term and short-term on the effectiveness of monetary policy by using a TVP-VAR model from the time-varying perspective. In addition, we provide a modified offset coefficient model and measure the offset effects for both long-term and short-term international capital flows. The impact of short-term international capital flows on the effectiveness of monetary policy is positive and much more significant than that of longterm international capital flows. In the dynamic process, we find the offset coefficient of shortterm international capital flows has a more violent fluctuation than that of the long-term international capital flows. Implications are explored from three aspects: establishing effective financial supervision, perfecting monetary policy transmission mechanism and developing new monetary sterilization tools.

Suggested Citation

  • Zhaosu MENG & Wei WEI & Xiaotong LIU & Kedong YIN, 2018. "The Influence of International Capital Flow on the Effectiveness of Chinese Monetary Policy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 21-40, December.
    • Handle: RePEc:rjr:romjef:v::y:2018:i:4:p:21-40
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    References listed on IDEAS

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    Cited by:

    1. Bogdan DIMA & Ştefana Maria DIMA & Flavia BARNA, 2019. "Inflation Contagion Effects in the Baltic Countries: A Time-varying Coefficients VAR with Stochastic Volatility Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 72-87, March.
    2. Hasdi Aimon & Rika Utami Restihani & Anggi Putri Kurniadi*, 2019. "The Interaction of Macroeconomic Variables on Capital Inflow in Emerging Market Countries in ASEAN: Panel Error Correction Model Approach," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(9), pages 1357-1364, 09-2019.

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    More about this item

    Keywords

    capital mobility; monetary policy; time-varying volatility; TVP-VAR model; the offset effect;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F30 - International Economics - - International Finance - - - General

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