The Study Of Effectiveness Of China's Monetary Policy And International Capital Flows

The goal of monetary policy lies in maintaining a stable price level,to achieve full employment,to keep the foreign exchange market and financial market stability and promote economic growth.However,the inconsistencies between the goals increase the difficulty of the central bank's regulation.As international capital inflows and international trade surplus,the central bank adopted various means of macroeconomic regulations and controls,including foreign exchange intervention to keep the RMB currency stable.With the rapid growth of net assets from abroad,the excessive foreign exchange interventionaffect the effectiveness of the monetary policy in the long period,resulting the non-independence of monetary policy in China and the monetary base increased.International capital flows has always been a hot issue in the field of international economy.The Asian financial crisis caused the people aware of the international capital flow problem in developing countries.As international capital controlsbe loosed gradually,the issue that various forms of international capital flows have affected China's monetary policy is worth study.How to adopt the tool of RMB exchange rate to flexibile andcoordinate the monetary supply and balance of international capital flow,thereby promote economic growth,should be solved in China.Based on the central bank balance sheet,the central bank assets and liabilities projects,and the market participates,this paperanalyzed the main factors influencing the changes of the monetary base.In the process of analysis,VAR model,impulse response and variance decomposition,granger causality is adopted,in order to investigate the channe of monetary base.The study illsutrated that the foreign exchange capital inflows have dominated the monetary supply since the exchange rate reform.The financial institutions are to buy the central bank's bondswhich are implemented in sterilisation foreign exchange intervention.For analyzing theinfluence of central bank bond issuance decision on micro market,the decision-making optimization function and budget constraints of micro main market participates be introduced,and the condition of market clearing under sterilisedforeign exchange intervention be analyzed.Considering there are exist a variety of international capital flows,the paper tried to investigate the central bank's sterilised intervention for different forms ofinternational capital flows,which could provide suggestions for policy makers and to regulatedifferent forms of international capital flows in different ways.Based on existing research,this paper will make somecorrection tothe BGT model assumptionaccording to the actual situation in China.Considering the model is endogenous,the GMM estimation methodis adopted to estimate the coefficients with recursive regressions.Finally,basing on the empirical analysis results,the paper will analyze how to balance the development of the two market foreign exchange market and money market.The full text mainly is divided into seven parts;the content is arranged as follows:The first part mainly introduces the research background and research significance of this paper,the introduction of the central bank balance sheets,the sterilized intervention in foreign exchange market,and the concept of the effectiveness of monetary policy.Based on the introduction of the existed research,the innovative,research structure arrangementes illstruated.The second part is the theoretical review and model building.First the paper introduces the traditional model briefly.Then DSGE model under capital control be introduced,this part mainly analysis the reflection of market participants when the monetary authorities implement monetarypolicy.Finally based on the foreign exchange market and money market equilibrium,the paper modifies the BGT model according to China's actual situation,and the empirically model is derived from theoretical anlysis.The third part mainly analyses of current situation of China's international capital controls and structural changes in international capital flows.The QDII system,QFII system,RQFII system be analyzed.This part emphasis on the different forms of international capital inflow of China with relaxation of international capital control in recent years,and analyzes the possibility of opening capital account foreign exchange risk.The fourth part introduced the balance sheet,and analyzed endogenous of monetary supply under foreign exchange intervention mechanism.The empirical study showsChina's monetary base passively relies on the increase offoreign net assets.The VECM model be adpted to predict,the observation and forecast value is very close tofurther illustrate model has the good predictability and reliability.The fifth part reviews the sterilization measures taken by the central bank,and analyzed the effectiveness of the policies in recent years.Considering the sterilisation mainly relies on the bond market,basing on DSGE model analysis,this part introduce micro market participatesinto model,and analyzed the reaction of the market participatesfacing thesterilisation intervention implemented bymonetary authorities.Then establish optimal decision of the utility function of various market participants,which subject to the setted budget constraint.When market clearing,the economic steady state be reached.Based on analysis of the optimal decisions,the central bank sterilisation foreign-exchange interventionunder the steady state is effective or not is analyzed.The sixth part is the empirical analysis,this part mainly analyzes the different forms of international capital flows,including FDI,non-FDI,and the current account.The effect of monetary policy independence is analyzed by using the recursive model to measure the dynamic offset coefficientand offset coefficient of different forms of international capital.The empirical results show that the central bank tends to sterilize the better liquidity international capital,and after the third quarter of 2007,issuing bonds decreased in sterilisation intervention.Based on the former parts,the seventh part analyzed how to achevie monetary policy independence when facing massive international capital flows in current situation that RMB internationalization gradually and RMB joined the SDR,how to achevie the balanced development of monetary market and foreign exchange market through the exchange rate regime.