Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/115333 
Year of Publication: 
2015
Series/Report no.: 
ADBI Working Paper No. 513
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
This paper first reviews recent developments in exchange rate regimes, capital account liberalization, interest rate liberalization, and monetary policymaking in the People's Republic of China (PRC). It then observes that the PRC's monetary policy autonomy may have been reduced with falling capital control effectiveness and a rigid exchange regime that is still tightly managed against the United States ( US ) dollar. This hypothesis is investigated empirically using both the Taylor rule and the McCallum-like rule to test whether the PRC's money market interest rate and/or quantity of money supply are being increasingly influenced by the US interest rate or reserve accumulation. The paper concludes that there is considerable evidence suggesting diminishing monetary policy autonomy in the PRC. To regain policy autonomy, the monetary authority needs to substantially increase exchange rate flexibility of the renminbi as long as it continues to pursue capital account opening.
Subjects: 
trilemma challenges
exchange rate regimes
monetary policy autonomy
peoples republic of china
taylor rule
mccallum rule
JEL: 
E52
E58
Document Type: 
Working Paper

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