Optimal Capital Account Liberalization in China
Zheng Liu (),
Mark Spiegel () and
Jingyi Zhang ()
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Jingyi Zhang: Shanghai University
No 2018-10, Working Paper Series from Federal Reserve Bank of San Francisco
China maintains tight controls over its capital account. Its prevailing regime also features financial repression, under which banks are often required to extend a fraction of funds to state-owned enterprises (SOEs) at below-market interest rates. We incorporate these features into a general equilibrium model. We find that capital account liberalization under financial repression incurs a tradeoff between aggregate productivity and intertemporal allocative efficiency. Along a transition path with a declining SOE share, the second-best policy calls for a rapid removal of financial repression, but gradual liberalization of the capital account.
JEL-codes: F38 G18 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cna, nep-mon and nep-tra
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