An Empirical Research On The Relationship Between Stability Of Expected RMB Exchange Rate And International Capital Flows

Accompanied by strong growth of the world economy, the scale of global capital flows in 2007 has more than 1448 billion U.S. dollars. At the same period, with the improvement of investment environment in China, China has become one of the most attractive areas for foreign direct investment in the world. At the same time, as the improvement of QDII system, the scale of foreign direct investment will substantially grow, especially investment foreign equity. At present, China is facing a situation in which a large scale of surplus funds enters. With the global financial crisis deepening, the global economy has faced a lot of uncertainty. In order to make China's economy maintain high-speed, stable, sustainable development, we must monitor closely the change of the trade and capital flows, speed up the relevant mechanism reform and the guidance of the expected exchange rate, improve the ability to guard against the external shocks, and take flexible response measures timely to ensure the stable macro-economic growth.With the contemporary international economic situation as background, first of all, the paper makes a summary and discuss about the researches by the scholars at home and abroad among the three aspects which are expected exchange rate and its stability, the expected substitute variable of RMB exchange rate, and the theory of international capital flows. Then according to the expected formation mechanism of RMB exchange rate, with the RMB DNF exchange rate as expected substitute variable of RMB exchange rate, five influential factors being selected which are the fluctuation of foreign exchange reverse, Sino-US interest rate differentials and nominal exchange rate of RMB against U.S. dollar, the paper establishes VAR model and ECM model between these four variables, and analyzes the short- term and long-term Granger causality between each variables, the impulse response function and the variance. In this paper, the author proposes that regardless from the long term or the short term, the changes in Sino-US interest rate differential is the key factor to affect the stability of the expected RMB exchange rate and it will last a relatively long duration.On the basis of the research of stability of expected RMB exchange rate and the long- term and short-term capital flows as well as capital control measure, according to the influencing mechanism of international capital flows and the different features of long-term and short-term capital flows, five factors, which are changes of Sino- US interest rate differentials, fluctuation of expected RMB exchange rate, fluctuation of actual exchange rate of RMB against U.S. dollar, the changes of consumer price index, and changed value of growth rate of the industrial added value, are selected as variables which influences the long- term capital flows. Adopting vector autoregressive method, by checking to each variables'Granger causality, decomposing impulse response function and the variance, the paper argues that the stability of the RMB exchange rate is the key factor to affect the short-term capital flows with a four-month affecting period, While the long-term capital flow is mainly affected by the improvement of the macro-economic situation which is represented by the fluctuation of growth rate of industrial added value.Finally, on the basis of the theoretical analysis and empirical analysis, the paper discusses that under the current international financial crisis, facing the disturbance of a large scale of surplus funds, what measurements the government should take to deal with them. The paper points out that on the basis of optimizing economic structure and improving financial system, it is necessary to speed up the market-oriented interest rate reformation, improve the formation mechanism of RMB, increase the effectiveness of capital controls, and improve capital management policies, focus on rational policy guidance of expected RMB exchange rate, make strategies of capital investment, in order to cope with the current international economic situation, and to promote the healthy development of the national economy.