Table of Contents
Economics Research International
Volume 2014 (2014), Article ID 509643, 14 pages
http://dx.doi.org/10.1155/2014/509643
Research Article

The Effectiveness and Sustainability of the Sterilization Policy in China

1Department of International Business, Shih Chien University, No. 70, Dazhi Street, Zhongshan District, Taipei City 104, Taiwan
2Department of Banking and Finance, Kainan University, No. 1 Kainan Road, Luzhu, Taoyuan County 33857, Taiwan

Received 29 April 2014; Accepted 4 June 2014; Published 20 August 2014

Academic Editor: João Ricardo Faria

Copyright © 2014 Chien-Ping Chung et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

The aim of this paper is to examine the sterilization policy in China. First, several indices are used to measure the status of China’s markets and to determine effectiveness and sustainability of the sterilization policy and the possible impacts it may have induced. Second, within a microeconomic framework, we incorporate the housing price variable into the target loss function of the monetary authority to explore its financial capabilities and evaluate the effectiveness and sustainability of China’s sterilization policy. The empirical results show that Chinese monetary authorities sterilize almost all of the effects of international capital inflows and increase foreign exchange reserves on the monetary base. That is, increased capital mobility does not sabotage the independence of the Chinese monetary policy. Nevertheless, analyses of the sustainability of sterilization policy indicate that the sustainability of the monetary sterilization policy has been seriously challenged since March 2008, which suggests that Chinese monetary authority has endured tremendous pressure for unsustainable sterilization.