Hot Money Flows In Our Country The Size Of The Estimation And Its Motivation And Impact Analysis

As the water, capital’s mobility is eternal. In recent years, with the expansion of China’s economic aggregate and the substantial increase in foreign exchange reserves, as well as the development of world financial liberalization and globalization, large-scale flows of hot money are becoming more and more frequent. Hot money chasing the huge short-term gains is often in and out of a country’s domestic market, which may causes strong impacts on the country’s exchange rate, financial markets and the real economy. This paper will be concerned about the large-scale high-frequency flows of hot money in China.Firstly, according to hot money’s characteristics, the study gives the definition of hot money, and according to the feature of Chinese international balance of payments, especially the capital account, the study analyzes the hidden ways of the flows of hot money in China’s domestic market.Then according to the characteristics of all hidden channels, the study restores hot money’s hidden scale, and combines with the indirect estimates to calculate each phase’s scale of hot money. Among them, estimate of scale in the trade account uses the statistical difference in the re-export trade between China mainland and Hong Kong. Estimate of scale in the FDI account uses the difference between the BOP table’s statistics and actual investments. Estimate of scale in the Net Error account adopts the internationally accepted reasonable level. Estimate of scale in the underground banking uses the adjustment factor.On the basis of estimate of scale of hot money, the paper analyzes the driving factors of hot money’s flows and establishes the triple-arbitrage model to do Granger causality test. The result shows that the RMB exchange rate is the most important factor causing inflow of hot money in China.At last for the large-scale flow of hot money in China, the paper analyzes the impacts of hot money to Chinese financial market, including impact on the RMB real exchange rate, causation of asset price bubble, dilemma of the central bank’s monetary policy.