The Opening-up of China's Capital Account and Its Adjustment of International Payment Balance——A Theory and Positive Analysis of Dynamic Linkage between Interest Rate and Exchange Rate

  • Xue-meng XU ,
  • Fa-qin LAN
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  • School of Business, East China Normal University, Shanghai 200062, China

Received date: 2006-11-03

  Online published: 2007-03-25

Abstract

China's asymmetric capital control during the process of opening its capital account, as well as insufficient liberalization of its economy, is reflected in the Mundel-Flemming model with the slope of BP line in M-F model bigger than LM line.Therefore, effects of monetary policy, fiscal policy and exchange rate policy will be weakened under a fixed exchange rate regime in terms of their adjustment to balance of payment.An adoption of a flexible exchange rate regime, however, will greatly enhance those effects.As a result, China is advised to proceed with opening its capital account and speed up liberalization of the interest rate and exchange rate system so as to heighten effectiveness of adjusting to its balance of payment.

Cite this article

Xue-meng XU , Fa-qin LAN . The Opening-up of China's Capital Account and Its Adjustment of International Payment Balance——A Theory and Positive Analysis of Dynamic Linkage between Interest Rate and Exchange Rate[J]. Journal of East China Normal University (Philosophy and Social Sciences), 2007 , 39(2) : 72 -77 . DOI: 10.16382/j.cnki.1000-5579.2007.02.012

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