China’s goal of eventually having the renminbi (RMB) be “fully convertible” necessarily requires that its capital account be fully liberated; this paper investigates the on-going changes of the implemented capital controls by China and China’s progress on liberalizing the country’s capital account. The first portion of the paper studies deviations of the covered interest parity, a common measure of capital controls. Econometrical analysis provides evidence for significant and persistent RMB/USD interest rate differentials, calculated from monthly data of 1-month yields for the sample period of 1999 to 2014. At the same time, evidence for cointegration between the onshore and offshore yield suggests that capital flows are not fully restrictive in the long run. The second portion of the paper analyzes constructed de jure capital control indices based on IMF’s AREAER documents following Chen and Qian (2015), and actual capital account flows based on China’s Balance of Payments. The constructed de jure indices quantify the intensity of changes of capital controls, capturing the gradualist style that China adopts in implementing its policies. The index reveals that China has been increasing its pace of capital account liberalization in the recent years compared to the past, and in particular, prioritizes liberalizing controls on outward FDI flows and equity securities inflows. The constructed de jure indices and the respective flows for FDI and equity securities are found to be highly correlated, implying that flows have been responsive to changes in the controls. It also indicates that prior to the restriction lift offs, the capital controls had been relatively effective.

After two world wars, the West European Economy goes through serious recession. Through the cold war, the representatives of west European countries, German and France, feel that they must cooperate. Hence, by the bases of economic co-operations, the West Europe starts to integrate their resources and political alliances. From the ¡§Economic Community (EC)¡¨ to ¡§Economic and Monetary Union (EMU)¡¨, most West European countries go through several obstacles, like the Collapse of Bretton Woods System in 1971 and the European Crisis in 1992,¡K¡K, etc. Finally, in 1th, Jan., 1999, 11 countries of European Union establish EMU and expect to take Euro as their single currency formally in 2002. They also establish European Central Bank (ECB) to execute the Euro zone¡¦s single monetary policy. The status of Euro after 1th Jan., 1999 is the purpose of this study. This article tries to use the Exchange Rate decision theories, Purchasing Power Parity (PPP) and Interest Rate parity (IRP), to investigate the relationship between Euro and USD. From several statistical empirical tests, it reveals that the trends of Euro couldn¡¦t correspond with the theoretical wants, ie PPP and IRP can¡¦t catch the trends of Euro. By the outcome of ¡§Sign Test¡¨ and ¡§Wilcoxon Sign-Rank Test¡¨, it can be found obviously that the Euro indeed is undervalued from the establishment to Apr., 2000 if we don¡¦t take the transaction costs into account. As a result of the outcome of empirical finds, the article starts to investigate the reasons why the theoretical values from exchange rate decision theories are not equal with real ones. One is that if the empirical models ignore some important factors which lead to the biases of models¡Fthe other is if Euro is undervalued during this observation periods. From the economic macro-environmental analyses, the article can infer that because of the Kosov Wars, Russian economic reform problems, the increase of short interest rate gap between USD and Euro, the different economic reform paces among member countries of EMU,¡K¡K, etc. result in the main factors of the weak currency - Euro.

[pt] Tradicionalmente, muitos trabalhos têm estudado os efeitos das intervenções cambiais esterilizadas nas taxas de câmbio, tanto empiricamente quanto teoricamente, encontrando resultados mistos. Mais recentemente, a literatura de finanças internacionais têm procurado explicar os desvios na Paridade Coberta da Taxa de Juros (PCJ), que vem sendo observado entre as moedas das economias desenvolvidas após a Grande Crise Financeira de 2008. Neste trabalho, ligamos as duas literaturas ao estudar o efeito das intervenções cambiais nos desvios na paridade coberta de juros. Nossa amostra consiste nas intervenções realizadas pelo Banco Central do Brasil entre os anos de 2009 e 2020. Este período contempla o programa de intervenções pré-anunciadas de 2013, implementado no contexto do Taper Tantrum, e que já mostrou ter afetado significantemente as taxas de câmbio (Chamon, Garcia e Souza (2017) ). Para avaliar os efeitos, construímos uma série contrafactual utilizando a metodologia ArCo, desenvolvida por Carvalho, Masini e Medeiros (2018), e também estimando funções impulso resposta utilizando Local Projection, desenvolvida por Jordà (2005). Os resultados indicam que a venda de dólares no mercado futuro aumentam os desvios na PCJ, enquanto que compras de dólares tem o efeito oposto. A oferta de dólares via contratos de recompra diminui os desvios no curto prazo. As intervenções no mercado a vista apresentam resultados inconclusivos. / [en] Traditionally, much has been written about the effects of FX (foreign exchange) sterilized interventions on exchange rates, both theoretically and empirically, with mixed results. More recently, the international finance literature has tried to explain the deviations from the well-known Covered Interest Parity (CIP) condition that have, since the 2008 Great Financial Crisis, arisen among advanced economies currencies. Here, we originally merge these two strands of the literature by analyzing the effects of sterilized FX interventions on the CIP (Covered Interest Parity) deviation. Our sample is composed of Brazilian Central Bank FX interventions between 2009 and 2020. This period contains a major program of announced FX interventions in response to the Taper Tantrum, in 2013, which has already been shown to have significantly affected the level of the exchange rate (Chamon, Garcia, and Souza (2017)). To gauge the effects, we build a counterfactual employing the ArCo methodology, developed by Carvalho, Masini, and Medeiros (2018), and also make use of Jordà (2005) Local Projections. The results indicate that selling US dollars in the futures market increases CIP deviations while buying US dollar futures has the opposite effect. Offering US dollar repo credit lines points to a short-lived decrease in the deviation. The number of sterilized sales or purchases of spot currency seems not to be high enough to lead to conclusive results.

[pt] Desvios de Paridade Coberta da Taxa de Juros (CIP) têm sido amplos e persistentes, entre economias do G10, desde a crise financeira mundial de 2008. Uma das explicações para a quebra na relação de paridade (CIP) são as novas regulações bancárias que surgiram no período pós-crise. Por outro lado, desvios de CIP na economia brasileira têm sido associados ao índice EMBI+, que é uma medida de risco país, tal como em Garcia and Didier (2003). A partir da literatura recente sobre desvios de CIP (i.e., a currency basis) entre as economias do G10, eu mostro a evolução recente da cross-currency basis para essas economias, durante a pandemia de 2020, e então eu estudo os determinantes macroeconômicos e regulatórios da basis do Real. Usando a estratégia empírica de Cerutti et al (2021), eu encontro que o bid-ask spread (medida de liquidez) do dólar futuro tem um efeito proeminente. Em uma abordagem de diferença-em-diferenças, eu encontro que a basis brasileira sobe aos finais de trimestres, coincidindo com o período em que os contratos futuros aparecem no balanço patrimonial dos bancos. Tal evidência sugere um efeito causal de regulação bancária na currency basis, em linha com Du, Tepper and Verdelhan (2018). / [en] Covered Interest Parity deviations (CIP) have been large and persistent among G10 currencies since the global financial crisis in 2008. One of the explanations for the CIP condition breakdown are the new banking regulations that arose in the post-crisis period. On the other hand, CIP deviations for the Brazilian economy have been associated with the EMBI+ index, which is a measure of country risk, as in Garcia and Didier (2003). Building on the recent literature on Covered Interest Parity deviations (i.e, the currency basis) among G10 currencies, I show the recent evolution of the cross-currency basis for the G10 economies, during the 2020 pandemic crisis, and then I study the macroeconomic and regulatory drivers of the Brazilian currency basis. Using the regression approach of Cerutti et al (2021), I find that the FX bid-ask spread has a prominent effect on the real/dollar basis. Using a difference-in-differences approach, I find that the Brazilian currency basis rises at quarter-ends, which is the period when forward contracts appear on banks balance sheets. This points to a causal effect of banking regulation on the currency basis, in line with Du, Tepper and Verdelhan (2018).

This thesis provides a thorough analysis of the covered- and uncovered interest parity conditions (CIP, UIP) as well as the forward rate unbiasedness hypothesis (FRUH) for Sweden and the European Economic and Monetary Union (EMU). By studying data on interbank rates in Sweden (STIBOR) and the EMU (EURIBOR) as well as the corresponding spot- and forward exchange rates, monetary integration and country-specific risks are determined and analyzed with direct applications to the potential entry of Sweden into the EMU. As interest rate parity in general gives insight into market efficiency and frictions between the chosen regions, such points are discussed in addition to EMU entry. Drawing on past studies that mainly studied one condition in isolation, a nested formulation of interest rate parity is instead derived and tested using cointegration and robust estimation methods. The results point to a strict rejection of the FRUH for all horizons except the shortest and a case where CIP only holds for the 6-month horizon and partially over one year. This implies, based on the nested formulation, that UIP is rejected for all horizons as well. Ultimately, the study concludes that a Swedish entry into the EMU is not motivated given the lackluster results on UIP and due to the lack of monetary integration. / Den här uppsatsen presenterar en djupgående analys av det kurssäkrade- och icke-kurssäkrade ränteparitetsvillkoret samt den effektiva marknadshypotesen på valutaterminer för Sverige och den europeiska ekonomiska och monetära unionen (EMU). Genom att studera data på interbankräntor i Sverige (STIBOR) och EMU (EURIBOR) samt respektive spot- och valutaterminskurser så skattas och analyseras monetär integration samt landsspecifika risker med en direkt tillämpning på Sveriges eventuella inträde i EMU. Eftersom ränteparitet generellt ger insikt i marknadseffektivitet och friktioner regioner emellan, diskuteras även dessa punkter utöver ett eventuellt EMU-inträde. Genom att bygga på föregående studier som i huvudsak studerar ränteparitetsvillkoren var för sig, härleds en sekventiell formulering av villkoren som sedan testas med kointegration och robusta estimeringsmetoder. Resultaten ger att den effektiva marknadshypotesen strikt förkastas på alla tidshorisonter förutom på en dag respektive en vecka, samt att kurssäkrad ränteparitet håller på 6 och delvis 12 månaders sikt. Baserat på den sekventiella formuleringen så innebär detta att icke-kurssäkrad ränteparitet inte håller på någon tidshorisont. Slutligen, baserat på både resultat och diskussion, är ett svenskt inträde i EMU inte motiverbart givet negativa resultat för icke-kurssäkrad ränteparitet och avsaknaden av fullständig monetär integration mellan regionerna.