Research

Publication

Yang Zhou. “Benefits and Costs: the impact of capital control on Growth-at-risk in China.” International Review of Financial Analysis (2024): 103161 [NEW!]

Published Version
Awarded Moriguchi Prize
Awarded PAFTAD Young Fellowship
WP Version
Abstract: Capital account liberalization is generally beneficial to developing and emerging countries. However, if there is a downside risk in one country, capital control policy can prevent it from exposing to carry trade flows and capital flight, and protect it from external financial volatility. In this paper, I study the marginal effects of different types of China's capital control indices on GDP growth distribution and the term structure of such distribution using quantile regressions with local projections and fitted skewed t-distribution. I find that (i) there are heterogeneous effects of China's capital control policies on GDP growth distribution: the aggregated capital control indices are beneficial in reducing the downside risk of real GDP growth in medium term whereas they are costly on the upswings of real GDP growth in near-term; (ii) the marginal effects of capital control indices on GDP growth over quantiles show that the heterogeneous effects are stronger in near-term than medium term; (iii) specifically, these heterogeneous effects are more evident in short term for outflow control index and resident transaction control index; (iv) the granular capital control indices show broadly heterogeneous effects even if several of them are statistically insignificant.

Yang Zhou. "The effects of capital controls on housing price." The Journal of Real Estate Finance and Economics (2024) [NEW!]

Published Version (Open Access)
Awarded Kanematsu Prize
WP Version
Abstract: Policymakers increasingly use capital control policies (i.e., capital flow management) to manage capital flows. However, whether the implementation of such policies can effectively affect housing prices and to what extent is less discussed. In this paper, we study the effects of four types of granular capital control policies on housing prices using a large cross-country panel of 53 economies from 1995 to 2017. We find that the estimated effects of capital controls are distinct for different capital flow types and flow directions, but most capital control indices appear to reduce housing prices. Specifically, we find that capital controls have asymmetric effects on housing prices for advanced and emerging economies. The negative effects of capital controls on housing prices are mainly driven by pre-crisis subsample. This means that capital controls have been in effect several times before Global Financial Crisis. We also estimate the effects for boom and slump periods respectively and find that capital control policies are implemented in an acyclical way. Since there exists endogeneity for capital control on real estate transactions, we further use inverse probability weights to rebalance capital control actions and find that this method can weaken the negative effects on housing prices, and the attenuation effects can be attributed to endogenous factors.

Shigeto Kitano, and Yang Zhou. "Effects of China’s capital controls on individual asset categories." Finance Research Letters 49 (2022): 103032.

Published Version (Open Access)
WP Version
Awarded Kishimoto Prize
Abstract: We empirically assess the effects of China’s capital controls on individual asset categories by using the local projection method. Our results show stark differences among individual asset categories. Capital controls on equity and financial credits affect the corresponding net inflows significantly, whereas those on the other three asset categories (bonds, commercial credits, and direct investment) do not.

Yang Zhou, and Shigeto Kitano. “Capital controls or macroprudential regulation: Which is better for stabilizing land booms and busts?” RIEB Discussion Paper Series, No. 2023-12. [R&R]

WP Version
Abstract: Emerging markets have experienced land booms and busts along with international capital inflows and outflows repeatedly. This study quantitatively examines the effectiveness of (i) macroprudential policies targeting land markets and (ii) capital controls targeting capital inflows and outflows. We analyze which policy better manages the coincidence between land booms (busts) and capital inflows (outflows). We build a small open economy NK-DSGE model in which banks choose their asset portfolio between physical capital and land subject to financial constraints. The quantitative results show that the superiority of the two policies depends on the type of shock impacting a small open economy. In the case of domestic land market shocks, macroprudential policies enhance welfare, whereas capital controls reduce welfare. Conversely, in the case of foreign interest rate shocks, the superiority of the two policies is reversed: capital controls enhance welfare, while macroprudential policies deteriorate welfare.

Yang Zhou, and Shigeto Kitano. "Effectiveness of capital controls: Gates versus Walls." RIEB Discussion Paper Series, No. 2022-38. [Submitted]

WP Version
Abstract: This study analyzes the effectiveness of capital controls on international debt flows using data of 81 economies, including both advanced and emerging economies, over the period from 1995 to 2019. The analysis using the total sample shows that, although they are in the expected directions, the impulse responses of capital controls are statistically insignificant. Making various distinctions among samples (such as advanced and emerging economies and pre- and post-crisis periods), we still find that most results are statistically insignificant. However, the canonical distinction between the "gate" and "wall" economies indicates that the effectiveness of capital controls is relevant for the "wall" emerging economies.

Na Guo, and Yang Zhou. "House Price Fluctuation, Macro-prudential Supervision and Optimal Monetary Policy." Nankai Economic Studies, 02, pp186-206, April 2019
Na Guo, Qian Zhang, and Yang Zhou. “House Prices Stickiness, Financial Systemic Risks, and Macroeconomic Volatility - Based on the DSGE Model of Endogenous Systemic Financial Risks”, Modern Economic Science, Vol.39, No.06, pp7-16, November 2017
Xihe Liu, Yuanyuan Mu, and Yang Zhou. “Financial Institutions Arbitrage, Adaptive Learning, and the Effectiveness of Central Bank Forward Guidance”, Finance Economic Research, Vol.32, No.04, pp14-23, July 2017
Xihe Liu, Yang Zhou, and Yuanyuan Mu. “Study on The Path of Re-balancing of Balance Sheet by Enterprise De-leveraging and Household Leveraging”, Nankai Economic Studies, 03, pp111-126, June 2017