Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/126703
Authors: 
Ma, Guonan
McCauley, Robert N.
Year of Publication: 
2014
Series/Report no.: 
Bruegel Working Paper 2014/05
Abstract: 
We gauge the de-facto capital account openness of the Chinese and Indian economies by testing the law of one price on the basis of onshore and offshore price gaps for three key financial instruments. Generally, the three measures show both economies becoming more financially open over time. Over the past decade, the Indian economy on average appears to be more open financially than the Chinese economy, but China seems to be catching up with India in the wake of the global financial crisis. Both have more work to do to open their capital accounts. Our price-based measures suggest strong inward pressure on Chinese money markets, in contrast to the consensus projection that China is likely to experience net private capital outflows when it thoroughly opens up financially. Policymakers need to monitor and to manage the risks along the dynamic path of capital account liberalisation.
Subjects: 
capital account openness
financial integration
law of one price
foreign exchange market
currency internationalisation
Chinn-Ito
Lane-Milesi-Ferretti
JEL: 
F23
F31
F36
F65
G15
Document Type: 
Working Paper
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