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Crisis, Capital Controls and Covered Interest Parity: Evidence from China in Transformation

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  • Jinzhao Chen

    (PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This paper aims to investigate the intensity and the effectiveness of the capital controls in China from 2003 to 2010, with special attention to the period of financial turbulence that erupted in the summer of 2007. We employ a two-regime threshold autoregressive model to study the Renminbi yield differential between the onshore interest rate and its non-deliverable forward (NDF)-implied offshore interest rate. We find that the de facto intensity of capital controls measured by the threshold increases over time, even during the period of financial turbulence. Moreover, a slightly lower speed of adjustment to the threshold implies that the capital controls are effective in this context.

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  • Jinzhao Chen, 2012. "Crisis, Capital Controls and Covered Interest Parity: Evidence from China in Transformation," PSE Working Papers halshs-00660654, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00660654
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00660654v1
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    Cited by:

    1. Gunther Schnabl & Kristina Spantig, 2016. "(De)Stabilizing Exchange Rate Strategies In East Asian Monetary And Economic Integration," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(02), pages 1-24, June.
    2. Cheung, Yin-Wong & Steinkamp, Sven & Westermann, Frank, 2016. "China's capital flight: Pre- and post-crisis experiences," Journal of International Money and Finance, Elsevier, vol. 66(C), pages 88-112.
    3. Verikios, George, 2015. "The Implications for Trade And FDI Flows From Liberalisation of China’s Capital Account," Conference papers 332655, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Chen, Jinzhao & Qian, Xingwang, 2016. "Measuring on-going changes in China's capital controls: A de jure and a hybrid index data set," China Economic Review, Elsevier, vol. 38(C), pages 167-182.
    5. Zhou,Yang, 2023. "Benefits and Costs: the impact of capital control on growth-at-risk in China," IDE Discussion Papers 905, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    6. Zhou, Yang, 2024. "Benefits and costs: The impact of capital control on growth-at-risk in China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    7. Christina L. Davis & Andreas Fuchs & Kristina Johnson, 2019. "State Control and the Effects of Foreign Relations on Bilateral Trade," Journal of Conflict Resolution, Peace Science Society (International), vol. 63(2), pages 405-438, February.
    8. Chen, Jinzhao & Qian, Xingwang, 2016. "Measuring on-going changes in China's capital controls: A de jure and a hybrid index data set," China Economic Review, Elsevier, vol. 38(C), pages 167-182.
    9. Ma, Guonan & McCauley, Robert N., 2013. "Is China or India more financially open?," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 6-27.
    10. Kristina Spantig, 2015. "International monetary policy spillovers—can the RMB and the euro challenge the hegemony of the US dollar?," Asia Europe Journal, Springer, vol. 13(4), pages 459-478, December.
    11. Wan, Xiaoli & Yan, Yuruo & Zeng, Zhixiong, 2020. "Exchange rate regimes and market integration: evidence from the dynamic relations between renminbi onshore and offshore markets," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Covered Interest Parity; Capital Control; China; Threshold Autoregressive model; GARCH effect; Financial Crisis; Contrôle de capitaux; Parité de taux d'intérêt couvert; Chine; Modèles autorégressifs à transition brutale; Effet GARCH; Crise financière;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • N0 - Economic History - - General

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