Time-varying character for short-term capital flow from the interest rate aspect in China

Abstract

This study investigates the causal link between short-term capital flow and interest rate differential with the bootstrap Granger fullsample causality and sub-sample rolling-window methods. The empirical results indicate that there is a unidirectional link from interest rate differential to short-term capital flow. However, when considering structural breaks in the above series, the full-sample causality test cannot be relied on. Hence, the time-varying rollingwindow method is employed to examine the dynamic causal nexus. Being influenced by the U.S. monetary, world economic situation, Chinese intervention policies and other factors, interest rate differential has influences on short-term capital flow in some periods, but the reverse effect does not exist. Therefore, it is important for authorities to focus on specific backgrounds (e.g., economic situation, monetary policies) and further utilise interest rate and capital control to alleviate negative effects from violent fluctuation of short-term capital flow on the Chinese economy.

Impact of Interest Rate Differential and Exchange Rate Movement on the Dynamics of Nigeria’s International Private Capital Flows

“…While Su and Zhang (2010), Ning and Zhang (2018), Wang, Su, and Tao (2019) all showed evidence supporting the importance of interest rate on international capital flow, but Cheung, Sven and Frank, (2016) suggest otherwise. Specifically, Su and Zhang, (2010) using the quadruplex arbitrage model investigate the impact of interest and tax differences between Studies on Nigeria mostly used the cointegration and error correction modelling approach and reported contrasting results.…”

“…From Chenery and Stout, (1966) and Thirlwall, (1976) a large body of literature has emerged on the use of foreign capital to bridge foreign exchange gap with the benefits of technology spillover and transfer of managerial skills (see Caves 1974;Mansfield & Romeo, 1980;Aitken & Harrison, 1994;Blomström, Kokko & Zejan, 1994;Barry & Bradley, 1997;Bosworth, Collins & Reinhart, 1999;Konings, 2001;Buckley, et al, 2002;Schoors & Tol, 2002;Basu, Chakraborty & Reagle, 2003;Kose, Prasad, & Terrones, 2009;Caporale, Donadelli & Varani, 2015;Djordjevic, Ivanovic & Bogdan, 2015;Okereke & Ebulison, 2016;Nwosa & Adeleke, 2017;Enisan, 2017;Ning & Zhang, 2018;Wang, Su, & Tao, 2019).…”