Capital Controls and Macroeconomic Policies After the Asian Currency Crisis in China

The Asian currency crisis led to a hit on China's export growth and the economic growth. This paper provides a small open economy with both a fixed exchange rate and capital controls to analyze what kind of macroeconomic policy can contribute to China's export growth and the economic growth. We find that, an unanticipated permanent devaluation in the nominal exchange rate and reduction in the nominal money supply under the capital controls can make chinese economic growth and export growth compatible. However, the latter will be better than the former since the former may trigger competitive depreciations of exchange rates in the near neighbor countries. On the other hand, fiscal policies cannot bring the compatible growths.