Does the Chinese interest rate follow the US interest rate?

Cheung, Yin‐Wong; Tam, Dickson C.; Yiu, Matthew S.

doi:10.1002/ijfe.349

Cited by 42 publications

(21 citation statements)

References 30 publications

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“…Several studies have investigated how these developments have affected asset price linkages in the region. Cheung et al (2008) examine the interactions between the Chinese and U.S. interest rates and finds that the U.S. effect on Chinese interest rates is quite weak. Apparently, even with its de facto peg to the U.S. dollar, China has measures in place that have enabled it to retain its policy independence and de-link its interest rates from U.S. rates.…”

Section: Empirical Literature On China's Financial Linkages With Eastmentioning

confidence: 99%

China’s Financial Linkages with Asia and the Global Financial Crisis

Glick

Hutchison

2013

ERWP

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Abstract:This paper presents empirical evidence on asset market linkages between China and Asia and how these linkages have shifted during and after the global financial crisis of [2008][2009]. We find only weak cross-country linkages in longer-term interest rates, but much stronger linkages in equity markets. This finding is consistent with the greater development and liberalization of equity markets relative to bond markets in China, as well as increasing business and trade linkages in the region. We also find that the strength of the correlation of equity prices changes between China and other Asia countries increased markedly during the crisis and has remained high in recent years. We attribute this development to greater "attentiveness" of international investors to China's role as a source and destination of equity finance during the crisis rather than to any greater financial deepening and liberalization, as China did not implement any major policy measures during this period. By contrast, the transmission of U.S. equity returns to Asian countries decreased after the crisis.

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Section: Empirical Literature On China's Financial Linkages With Eastmentioning

confidence: 99%

China’s Financial Linkages with Asia and the Global Financial Crisis

Glick

Hutchison

2013

ERWP

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“…However, the question of whether China has been able to implement an independent monetary policy is complicated. Cheung, Tam, & Yiu (2008) find that U.S. interest rates have a weak effect on China. Ma and McCauley (2008) find that capital controls have proved effective.…”

Section: Monetary Policymentioning

confidence: 88%

U.S. monetary policy and China's exchange rate policy during the great recession

Tervala

2018

Int. J Fin Econ

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I examine the transmission of expansionary U.S. monetary policy in cases where emerging economies—including China—peg their currencies to the dollar. I evaluate the value of the dollar peg as a fraction of consumption that households would be willing to pay for the dollar peg to remain as well off under the dollar peg as they would be under a flexible exchange rate. The value of the dollar peg is typically positive for the dollar bloc because the United States can no longer improve its terms of trade at the dollar bloc's expense. This provides a rationale for fixing the exchange rate. The dollar peg is typically harmful to the United States, providing a rationale for criticism of China's exchange rate policy during the Great Recession.

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“…The correlation between the two interest rate series is quite low at +3%, and the Chinese CHIBOR rate appears to be decoupled from the corresponding US LIBOR rate. This observation is in line with the reported finding that China retains its policy independence and the Chinese interest rate does not follow the US interest rate (Cheung et al ., ). Because the RMB exchange rate is heavily managed, the policy independence is indicative of the effectiveness of capital controls.…”

Section: Basic Data Analysismentioning

confidence: 97%

China's Capital Controls: Through the Prism of Covered Interest Differentials

Cheung

Herrala²

2014

Pacific Economic Review

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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. We study the renminbi (RMB) covered interest differential -an indicator of the effectiveness of capital controls. It is found that the differential is not shrinking over time and, in fact, appears larger after the global financial crisis than before. That is, capital controls in China are still substantial and effective. In addition to exchange rate changes and volatilities, the RMB covered interest differential is affected by credit market tightness indicators. The marginal explanatory power of these macroeconomic factors, however, is small relative to the autoregressive component and the dummy variables that capture changes in China's policy. Terms of use: Documents in EconStor mayJEL-Code: E440, F310, F320.

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Does the Chinese interest rate follow the US interest rate?

Cited by 42 publications

References 30 publications

China’s Financial Linkages with Asia and the Global Financial Crisis

China’s Financial Linkages with Asia and the Global Financial Crisis

U.S. monetary policy and China's exchange rate policy during the great recession

China's Capital Controls: Through the Prism of Covered Interest Differentials

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