The impact of shocks on the macroeconomy under endogenous and exogenous capital controls

This study examines the impact of TFP shock, world interest rate shock, domestic deposit rate shock, and fiscal policy shock on China's macroeconomic variables—such as capital credit scale and output growth rate—under the framework of endogenous and exogenous capital controls. Quantitative analysis reveals that an increase in the world interest rates has a negative impact on the domestic credit market, leading to a simultaneous decline in both household savings and capital inflows. Endogenous capital control can mitigate the adverse effect, playing a macroprudential role, whereas exogenous capital controls tend to amplify the negative shock. Expansionary fiscal policy through tax cutting proves effective in stimulating output growth rate. When facing economic downturns, priority should be given to implementing proactive fiscal measures, complemented by appropriate monetary easing with endogenous capital controls, to achieve output growth with less fluctuations.