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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

Abstract: 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
Date: 2018-08-02
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2018-10

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DOI: 10.24148/wp2018-10

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