Capital controls and optimal Chinese monetary policy

Chun Chang, Zheng Liu and Mark Spiegel

Journal of Monetary Economics, 2015, vol. 74, issue C, 1-15

Abstract: China׳s external policies, including capital controls, managed exchange rates, and sterilized interventions, constrain its monetary policy options for maintaining macroeconomic stability following external shocks. We study optimal monetary policy in a dynamic stochastic general equilibrium (DSGE) model that incorporates these “Chinese characteristics”. The model highlights a monetary policy tradeoff between domestic price stability and costly sterilization. The same DSGE framework allows us to evaluate the welfare implications of alternative liberalization policies. Capital account and exchange rate liberalization would have allowed the Chinese central bank to better stabilize the external shocks experienced during the global financial crisis.

Keywords: China; Sterilization; Capital controls; Renminbi exchange rates; Optimal policy (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (108)

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Working Paper: Capital controls and optimal Chinese monetary policy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:74:y:2015:i:c:p:1-15

DOI: 10.1016/j.jmoneco.2015.04.003

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