Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212877 
Year of Publication: 
2017
Series/Report no.: 
BOFIT Discussion Papers No. 14/2017
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
In emerging market economies, transmission of monetary policy through the foreign exchange market is complicated by the coexistence of financial restrictions and arbitrages. Using China as an example, we show that the coexistence of exchange rate interventions, capital controls and an on-shore-offshore exchange rate differential makes the long run equilibrium in the currency market nonlinear. Disturbances to this nonlinear long run equilibrium could offset the impact of monetary policy actions on domestic price stability. Omitting such nonlinearity leads to biased inference on the effectiveness of monetary policy.
JEL: 
E52
F31
F40
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-190-0
Document Type: 
Working Paper

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