Essays in Sterilized Interventions and Capital Controls

Download or read book Essays in Sterilized Interventions and Capital Controls written by and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three independent essays on sterilized interventions and capital controls. The first essay incorporates sterilized intervention and capital control policies into a standard open economy model and finds that these policies can be welfare improving for a small open economy. With these policies, policymakers take into account how their foreign bond holdings affect relative prices. This allows them to lower output volatility in the economy. The second essay looks at the effects of pegged exchange rates, capital controls and sterilized intervention policies in the context of China. The purpose of this paper is to see how much of China's current account surplus can be explained by government policy during a period in which total factor productivity growth in China was rapid. The model suggests that around half of the movement in China's current account can be explained by a pegged exchange rate and capital control policies. In the absence of these policies China runs a noticeable current account deficit. With these policies China runs a current account surplus, as efforts by policymakers to moderate the appreciation of the nominal exchange rate increases national savings. The final essay looks at the incentives for nations to vary restrictions on capital flows over the business cycle. Results from panel data suggest that countries increase controls on capital inflows in response to an appreciation in the real exchange rate and increased capital inflows. Countries also tend to increase controls on capital outflows during financial crises. However, neither controls on capital inflows or outflows vary with changes in GDP growth. In addition, we also find little evidence that nations vary their use of trade restrictions over the business cycle.