China as a reserve sink: The evidence from offset and sterilization coefficients

Ouyang, Alice Y.; Rajan, Ramkishen S.; Willett, Thomas D.

doi:10.1016/j.jimonfin.2009.12.006

Cited by 74 publications

(38 citation statements)

References 31 publications

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“…As Ouyang, Rajan, and Willett (2010) showed, high reserve growth at this time was offset by cuts in domestic credit. Inflation also remained under control.…”

Section: Reserve Accumulation and Macroeconomic Managementmentioning

confidence: 96%

Transpacific Imbalances and Macroeconomic Codependency

Thorbecke

2011

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Asian Development Bank InstituteWillem Thorbecke is a senior research fellow at ADBI in Tokyo. The author would like to thank Ron Denato, Atsuyuki Kato, Peter Morgan, and participants at the Symposium on Growth and Integration in Asia at the University of South Australia for many helpful comments.The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of ADBI, the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms.The Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI's working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. AbstractCurrent account deficits in the United States (US) and current account surpluses in East Asia are an enduring part of the global economic landscape. They are supported by low saving in the US and by reserve accumulation in Asia. This paper argues that this strategy is causing macroeconomic problems for the People's Republic of China (PRC). Inflation is rising, and interest rates are set too low because the yuan is closely linked to the US dollar. Low interest rates have fueled overinvestment in physical capital and rising real estate prices. They also cause savers to earn negative returns on their bank deposits. Greater exchange rate flexibility would allow more decoupling between the PRC's interest rates and US interest rates, helping the People's Bank of China to implement monetary policy that is appropriate for the PRC. Since exchange rate appreciations would be contractionary for the PRC, they should be combined with domestic absorption-increasing policies such as spending on education, health care, and urban transportation. Interest rates and exchange rates that are more determined by market forces would also help the PRC to move away from an overly capital-intensive growth path to one that is more beneficial for smaller firms and ordinary workers. JEL Classification: F30,...

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“…As Ouyang, Rajan, and Willett (2010) showed, high reserve growth at this time was offset by cuts in domestic credit. Inflation also remained under control.…”

Section: Reserve Accumulation and Macroeconomic Managementmentioning

confidence: 96%

Transpacific Imbalances and Macroeconomic Codependency

Thorbecke

2011

SSRN Journal

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“…In contrast with the three methods just described, this approach allows the contemporaneous endogeneity associated with sterilization policy in the context of capital flows: while monetary conditions are affected by capital inflows partly through changes in foreign reserves, international capital flows also respond to changes in domestic monetary conditions, typically through higher interest rates. To this end, studies including Ouyang, Rajan, and Willet (2007) estimate a system of simultaneous equations to measure sterilization policy. While this approach could alleviate endogeneity issues, it requires time series that are available for only a handful of countries used in our sample.…”

Section: B Sterilization Policymentioning

confidence: 99%

Capital Inflows: Macroeconomic Implications and Policy Responses

Elekdağ

Kose²,

Cardarelli³

2009

IMF Working Papers

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“…China follows a quasi-fixed exchange rate regime against the U.S. Dollar, accumulates massive international reserves and maintains tight capital controls to keep the parity unchanged (e.g. Glick and Hutchison, 2009;Ouyang et al, 2010). In contrast, the monetary policy regime in India is less explicit and apparently more dynamic, with the authorities typically arguing that discretion is paramount in their policy decisions.…”

Section: Introductionmentioning

confidence: 99%

Dove or Hawk? Characterizing monetary policy regime switches in India

Hutchison

Sengupta

Singh

2013

Emerging Markets Review

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The past two decades have witnessed a worldwide move by emerging markets to adopt explicit or implicit inflation targeting regimes. A notable and often discussed exception to this trend, of course, is China which follows a pegged exchange rate regime supported by capital controls. Another major exception is India. It is not clear how to characterize the monetary regime or identify the nominal monetary anchor in India. Is central bank policy in India following a predictable rule that is heavily influenced by a quasi inflation target? And how has the monetary regime been affected by the gradual process of financial liberalization in India? To address these points, we investigate monetary policy regime change in India using a Markov switching model to estimate a time-varying Taylor-type rule for the Reserve Bank of India. We find that the conduct of monetary policy over the last two decades can be characterized by two regimes, which we term 'Hawk' and 'Dove.' In the first of these two regimes, the central bank reveals a greater relative (though not absolute) weight on controlling inflation vis-à-vis narrowing the output gap. The central bank however was found to be in the "Dove" regime about half of our sample period, focusing more on the output gap and exchange rate targets to stimulate exports, rather than moderating inflation. India thus seems to be following its own direction in the conduct of monetary policy, seemingly not overly influenced by the emphasis on quasi-inflation targeting seen in many emerging markets.

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China as a reserve sink: The evidence from offset and sterilization coefficients

Cited by 74 publications

References 31 publications

Transpacific Imbalances and Macroeconomic Codependency

Transpacific Imbalances and Macroeconomic Codependency

Capital Inflows: Macroeconomic Implications and Policy Responses

Dove or Hawk? Characterizing monetary policy regime switches in India

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