UM
China's Capital and 'Hot' Money Flows: An Empirical Investigation
Cai, Tao1; Dang, Vinh Q. T.2; Lai, Jennifer T.3
2016-08-01
Source PublicationPacific Economic Review
ABS Journal Level2
ISSN1361-374X
Volume21Issue:3Pages:276-294
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 the relative importance of permanent and transitory components in China's overall foreign direct investment (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 a larger difference between onshore and offshore renminbi interest rates encourages capital inflows that are dominated by a transitory component. Greater global risk perception, proxied by S&P 500's volatility index, in contrast, 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 the USA 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.

DOIhttps://doi.org/10.1111/1468-0106.12091
Indexed BySCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectEconomics
WOS IDWOS:000383589100002
PublisherWILEY, 111 RIVER ST, HOBOKEN 07030-5774, NJ USA
The Source to ArticleEngineering Village
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Cited Times [WOS]:2   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionUniversity of Macau
Corresponding AuthorLai, Jennifer T.
Affiliation1.Sun Yat-sen University, China;
2.University of Macau, China;
3.Guangdong University of Foreign Studies, China
Recommended Citation
GB/T 7714
Cai, Tao,Dang, Vinh Q. T.,Lai, Jennifer T.. China's Capital and 'Hot' Money Flows: An Empirical Investigation[J]. Pacific Economic Review,2016,21(3):276-294.
APA Cai, Tao,Dang, Vinh Q. T.,&Lai, Jennifer T..(2016).China's Capital and 'Hot' Money Flows: An Empirical Investigation.Pacific Economic Review,21(3),276-294.
MLA Cai, Tao,et al."China's Capital and 'Hot' Money Flows: An Empirical Investigation".Pacific Economic Review 21.3(2016):276-294.
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