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Hot money inflows in China: How the people's bank of China took up the challenge

Vincent Bouvatier

Cahiers de la Maison des Sciences Economiques from Université Panthéon-Sorbonne (Paris 1)

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 (search for similar items in EconPapers)
JEL-codes: C32 E5 F32 F33 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2006-02
New Economics Papers: this item is included in nep-cba, nep-cna, nep-fmk, nep-ifn, nep-mac, nep-mon, nep-sea and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Hot Money Inflows in China: How the People's Bank of China Took up the Challenge (2006) Downloads
Working Paper: Hot Money Inflows in China: How the People's Bank of China Took up the Challenge (2006) Downloads
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