Economics at your fingertips  

China's Capital and "Hot" Money Flows: An Empirical Investigation

Tao Cai, Vinh Q. T. Dang and Jennifer Lai ()
Additional contact information
Tao Cai: Sun Yat-sen University
Vinh Q. T. Dang: University of Macau

No 162015, Working Papers from Hong Kong Institute for Monetary Research

Abstract: We examine time-series characteristics of China's capital flows during 1998-2014. More specifically, we employ Kalman filtering state-space models to gauge relative importance of permanent and transitory components in China's overall FDI, equity, bond, other investment, and bank credit flows. Our results show that only in the case of FDI are both gross inflow and net flow dominated by a permanent stochastic level, suggesting that this source of capital is largely permanent. Incorporating covariates into the state-space models, we find that larger difference between RMB onshore and offshore interest rates encourages capital inflows that are dominated by a transitory component. Greater global risk perception, proxied by S&P 500's volatility index, on the other hand, discourages them. These covariates imply that capital control may not be effective in stemming volatile and speculative flows. Our results on bilateral capital flows between China and US also suggest that these flows are less persistent and more volatile during 1998-2014 than previously found based on 1988-1997 data. Our results bear important policy implications as China engages in further reforms in its domestic financial system and greater integration with the world financial system.

Keywords: Capital Flow; Permanent Component; Transitory Component; State Space Model; China (search for similar items in EconPapers)
JEL-codes: C22 C5 F21 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2015-07
New Economics Papers: this item is included in nep-cna
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Internal Server Error ( [301 Moved Permanently]--> [301 Moved Permanently]-->

Related works:
Journal Article: China's Capital and ‘Hot’ Money Flows: An Empirical Investigation (2016) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from Hong Kong Institute for Monetary Research Contact information at EDIRC.
Bibliographic data for series maintained by HKIMR ().

Page updated 2021-04-07
Handle: RePEc:hkm:wpaper:162015