Crisis, Capital Controls and Covered Interest Parity: Evidence from China in Transformation.

Mardi | 2010-05-18

Jinzhao CHEN – libre

This paper aims to investigate the e®ectiveness of capital controls in China for bothshort-term and long-term, with a special attention to the period of ¯nancial turbulencebursted in the summer of 2007. On one side, we employ a two regime threshold autore-gressive model to study the Renminbi yield di®erential between the onshore interest rateand the o®shore Non Deliverable Forward-implied one for the period of 2006-2009; onthe other side, we distinguish (and measure) the short-term cross-border capital °owsfrom the long-term °ows for a long horizon. Based on obtained evidence, we found thecapital controls in China less e®ective, nevertheless, still working for some goals of Chi-nese government under a more opened capital accounts.