Financial Integration and the Global Effects of China's Growth Surge

40 Pages Posted: 1 Feb 2019

See all articles by Rod Tyers

Rod Tyers

Australian National University (ANU) - School of Economics; The University of Western Australia - Department of Economics

Yixiao Zhou

Australian National University (ANU) - Crawford School of Public Policy

Date Written: January 29, 2019

Abstract

China’s financial openness, as measured by cross border flows and asset ownership, peaked during its 2000s growth surge, as did downward pressure on global interest rates and price levels. This was despite China’s restriction of financial inflows to approved FDI and tight controls on private outflows. We analyze the global effects of the growth surge and their dependence on these financial policies by employing a global macro model with national portfolio rebalancing, in which flexibility in asset differentiation is used to index financial integration. The results suggest that, globally, the growth surge raised asset prices, reduced yields and bolstered deflationary pressures, while improving aggregate economic welfare. It is shown that, without capital controls, most surge effects on China would have been moderated substantially while the global impacts would have been larger.

Keywords: financial integration, China, imbalances, macro policy, spill-overs

JEL Classification: F42, F43, F47

Suggested Citation

Tyers, Rod and Zhou, Yixiao, Financial Integration and the Global Effects of China's Growth Surge (January 29, 2019). CAMA Working Paper No. 09/2019, Available at SSRN: https://ssrn.com/abstract=3324857 or http://dx.doi.org/10.2139/ssrn.3324857

Rod Tyers (Contact Author)

Australian National University (ANU) - School of Economics ( email )

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Australian National University
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Australia
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The University of Western Australia - Department of Economics ( email )

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Crawley, Western Australia 6009
Australia
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HOME PAGE: http://www.business.uwa.edu.au/school/staff-profiles?type=profile&dn=cn%3DRodney%20Tyers%2Cou%3DEcon

Yixiao Zhou

Australian National University (ANU) - Crawford School of Public Policy ( email )

7 Liversidge Street
Lennox Crossing
Canberra, ACT 0200
Australia

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