IDEAS home Printed from https://ideas.repec.org/a/taf/applec/v53y2021i26p2993-3022.html
   My bibliography  Save this article

Interest rate fixation, excessive fluctuations and exchange rate management in China

Author

Listed:
  • Bing Tong
  • Guang Yang

Abstract

This article proves in a New Keynesian model that interest rate fixation can explain ChinaŠs excessive business cycle fluctuations. The fixed nominal interest rate changes the propagation of external shocks, magnifies volatility of endogenous variables, and leads to economic instability. We then extend the model to a small open economy featuring capital controls, sterilized interventions and a managed exchange rate to capture the main characteristics of the Chinese economy. We prove that the magnifying effect of interest rate fixation holds in such an environment, but this effect diminishes with a more strictly managed exchange rate.

Suggested Citation

  • Bing Tong & Guang Yang, 2021. "Interest rate fixation, excessive fluctuations and exchange rate management in China," Applied Economics, Taylor & Francis Journals, vol. 53(26), pages 2993-3022, June.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:26:p:2993-3022
    DOI: 10.1080/00036846.2020.1870920
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00036846.2020.1870920
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00036846.2020.1870920?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yihao Xue & Qiaoyu Liang & Bing Tong, 2022. "The Effects of Energy Supply Shocks and Interest Rate Liberalization in China," CFDS Discussion Paper Series 2022/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    2. Tong, Bing, 2021. "The effects of capacity reduction policy under the interest rate peg in China," Journal of Asian Economics, Elsevier, vol. 74(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:53:y:2021:i:26:p:2993-3022. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RAEC20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.