A study of the time-varying impact of capital account liberalization on monetary policy rules in the open economy: Evidence from China

Ronghai Yang, Xiaowen Sun, Honglei Wang and Xiao Wang

Finance Research Letters, 2024, vol. 65, issue C

Abstract: This paper analyses the impact of capital account liberalization on monetary policy rules in an open economy, using a TVP-SV-VAR model. The results of the equal-interval impulse response reveal that the medium and long-term impacts of capital account liberalization shocks on monetary policy rules are more potent than those in the short term. The results of the time-point impulse responses indicate that the impact of capital account liberalization shocks on monetary policy rules in November 2013 shows a significantly stronger effect compared to March 2016. Both the results of the equal-interval and time-point impulse responses consistently indicate that capital account liberalization is more effective in stabilizing quantitative monetary policy rules compared to stabilizing price-based monetary policy rules.

Keywords: Capital account liberalization; Monetary policy rules; TVP-SV-VAR (search for similar items in EconPapers)
JEL-codes: F32 F37 F47 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324006573

DOI: 10.1016/j.frl.2024.105627

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