On International Short-Term Capital Movements and China’s Monetary Policy Independence: An Empirical Analysis

Abstract

Against the backdrop of the increasing impact of international short-term capital movements in the global economy, China’s monetary policy independence has also been affected. This article outlines several important effects of international short-term capital movements on China’s monetary policy independence by analysing features of channels and mechanisms of short-term international capital movement. The relationship between international short-term capital movements and China’s monetary policy independence is studied econometrically using a value-at-risk model. The findings indicate that such capital influxes, especially those from abnormal channels in huge volumes, do adversely affect China’s monetary policy independence.