The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange p...The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange purchases, ignited by huge foreign capital inflows, has effectively induced excess liquidity in China. More importantly, by developing an econometric madel for inflation and excess liquidity, the present study demonstrates that excess liquidity has imposed significant pressure on inflation in China over the past 10 years. This finding suggests that excess liquidity in China has not only contributed to the rise in stock prices and the real estate market boom, but also affected the consumer goods market. The potential transmission mechanism of liquidity-driven inflation and policy implications of the findings of this study are discussed.展开更多
This paper theoretically considers the long-run sustainability of China's monetary-cum-exchange rate policy under the impossible trinity.Two different models are examined:One sterilizes current net foreign assets(...This paper theoretically considers the long-run sustainability of China's monetary-cum-exchange rate policy under the impossible trinity.Two different models are examined:One sterilizes current net foreign assets(NFAs)and the other focuses on NFAs realized in the previous period.Under the de facto opening of financial flows,sterilization yields a negative risk premium in uncovered interest parity(UIP)that triggers a feedback increase among capital inflows.Here,stability depends on the magnitudes and the combination of structural and policy parameters.It is shown that if current capital inflows are sterilized,the monetary-cum-exchange rate policy in China offers a sustainable solution for exchange rates that are relatively stringently managed.However,such a solution can be obtained for relatively flexible or moderately managed rates if sterilization policy is implemented on the previous period's inflows.展开更多
基金National Social Science Fund (No.08CJY048)the research funding from the"985 Project"of Renmin University of China with Grant No.21353232
文摘The surge in international capital inflows and the remarkable excess liquidity in China between 1997and 2007are examined in the present paper. It is shown that China＇s improved position in terms of foreign exchange purchases, ignited by huge foreign capital inflows, has effectively induced excess liquidity in China. More importantly, by developing an econometric madel for inflation and excess liquidity, the present study demonstrates that excess liquidity has imposed significant pressure on inflation in China over the past 10 years. This finding suggests that excess liquidity in China has not only contributed to the rise in stock prices and the real estate market boom, but also affected the consumer goods market. The potential transmission mechanism of liquidity-driven inflation and policy implications of the findings of this study are discussed.
文摘This paper theoretically considers the long-run sustainability of China's monetary-cum-exchange rate policy under the impossible trinity.Two different models are examined:One sterilizes current net foreign assets(NFAs)and the other focuses on NFAs realized in the previous period.Under the de facto opening of financial flows,sterilization yields a negative risk premium in uncovered interest parity(UIP)that triggers a feedback increase among capital inflows.Here,stability depends on the magnitudes and the combination of structural and policy parameters.It is shown that if current capital inflows are sterilized,the monetary-cum-exchange rate policy in China offers a sustainable solution for exchange rates that are relatively stringently managed.However,such a solution can be obtained for relatively flexible or moderately managed rates if sterilization policy is implemented on the previous period's inflows.
