Hot Money Inflows in China: How the People's Bank of China Took up the Challenge

Vincent Bouvatier

Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL

Abstract: This paper investigates hot money inflows in China. The financial liberalization comes into effect and the effectiveness of capital controls tends to diminish over time. As a result, China is fuelled by hot money inflows. The US interest rate cut since 2001 and expectations of exchange rate adjustments are the main factors explaining these capital inflows. This study use the Bernanke and Blinder (1988) model extended to an open economy to examine implications of hot money inflows for the Chinese economy. A Vector Error Correction Model (VECM) on monthly data from March 1995 to March 2005 is estimated to investigate the recent upsurge in foreign reserves and shows that the interaction between domestic credit and foreign reserves was stable and consistent with monetary stability. Granger causality tests are implemented to show how the People's Bank of China (PBC) achieved this result.

Keywords: Hot money inflows; domestic credit; VECM; Granger causality; Capitaux spéculatifs; crédit domestique; causalité à la Granger (search for similar items in EconPapers)
Date: 2006-02
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00111153
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Citations: View citations in EconPapers (4)

Published in 2006

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Working Paper: Hot Money Inflows in China: How the People's Bank of China Took up the Challenge (2006)
Working Paper: Hot money inflows in China: How the people's bank of China took up the challenge (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:cesptp:halshs-00111153

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