Research Of International Capital Flows And Effects Of Monetary Policy

After the 1990s, the scale of international capital flows expanded rapidly, reaching unprecedented levels, it is no doubt the economic development of countries in the world play an important role in promoting. However, international capital flows in promoting the economic development of countries, while there are also many problems, it increases macroeconomic instability and risks, international capital outflows or inflows are likely to weaken the effectiveness of monetary policy of a country, thereby financial security of the country caused great impact. At present, China uses a reference to U.S. dollars based managed floating exchange rate system, under the exchange rate system, if the foreign capital inflows, the foreign exchange supply in foreign exchange market increases, which causes revaluation pressure of domestic currency, the central bank must be ready to intervene in the foreign exchange market in order to prevent exchange rate rising, which leads to an increase in money supply, the central bank monetary policy effectiveness is weakened.Firstly, basing on the analysis of theoretical models, this paper takes a specific analysis about all cases of monetary policy and sterilized intervention and non-sterilized intervention effectiveness. Subsequently, this paper analyses the impact of international capital flows on China's monetary policy, and then use the method of empirical analysis, focusing on China's monetary policy and the effectiveness of sterilized intervention. The empirical analysis shows that Chinese monetary policies are effective, but the effectiveness is weakened due to the greatly influx of international capital, in order to safeguard the independence of monetary policy, the Chinese monetary authorities conducted a large-scale sterilized intervention, but subject to rising costs of sterilized intervention and other factors constraints, China can not achieve completely sterilizing. Finally, in order to increase the effectiveness of China's monetary policy, stability and economic development, the paper combines Chinese current macroeconomic and monetary policy challenges encountered, as well as the problems identified through the above-mentioned study, and make practical recommendations.This paper argues that it is Chinese current exchange rate and monetary policy framework, leading to the difficulties faced by monetary policy, in order to be able to better respond to the impact of international capital flows under the conditions of an open economy, in order to allow monetary policy to serve the macro-economic regulation better, we need to reform from Chinese foreign exchange regime, the currency markets and exchange-rate institutional arrangements, and several other aspects to eliminate deficiencies in the system.