Fed paper examines Chinese response to rate shocks

federal reserve

A working paper published by the Federal Reserve Bank of San Francisco, on September 18, tests the effect of a foreign interest rate shock on a model of the Chinese economy.

The authors, Chun Chang, Zheng Liu and Mark Spiegel, find that liberalisation of the country's monetary policy would reduce the costs assumed by the central bank.

Under its current policy, China sterilises foreign currency revenues by purchasing them from the public and issuing domestic debt in return. The costs of this

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