International Capital Flows and Sterilization in China

With iarge-scale International capital inflow of China,the central bank takes measures in the foreign exchange market intervention to maintain exchange rate stability,which threatens the independence of domestic monetary policy.The efficiency of capital control and the changing pattern and efficacy of sterilization with the modified BGT model are investigaled.With the dummy variables that the extent of sterilization of foreign reserve inflows has changed between 1999 and 2011 are found.that the Central Bank only sterilizes the capital account but not the current account are also found.The extent of sterilization has fallen since 2010 and the Central Bank faces the dilemma of stability of the exchange rate and monetary policy autonomy.