An Empirical Analysis Of Factors Influencing The Inflow Of Hot Money In China

In February2007, the American subprime loan quality problemssurfaced.On4thApril2007, the US subprime mortgage crisis broke out. Theworld stock indexes of year2007showed a sharp decline. Beginning in2008,the federal reserve sharply cut interest rates75basis points ofemergency,then the interest rates of China and the US began to appearupside down. On8thApril2008, the IMF claimed the global subprime lossesof one trillion dollars.On15thSeptember2008, Lehman Brothers declaredbankruptcy. At the same time, the central bank of China raised bankrequired reserve ratio10times in2007, raised interest rates five times.In June2010, China carried out the second exchange reform, furtherstrengthen the elasticity of the RMB. Since2009, the European andAmerican developed countries try to revive the economy through the costof liquidity into financial markets on the quantitative easing monetarypolicy, leading to the active hot money in the market, increasing pressureof monitoring the hot money in China, causing very bad influence to ourcountry. The purpose of this paper is to research scale of hot money flowtrend and influencing factors of hot money, to study which aspects shouldbe focused on in the face of the crisis in the future in our country tocontrol hot money.This article will be studied from several aspects listed below:(1)theway to measure the size of the hot money;(2)the scale of hot money flowtrend decomposition;(3)time series structural transformation test;(4)the long-term equilibrium relationship in hot money system;(5)theshort-term volatility effect in hot money system;(6)the main factorsaffecting the hot money. In the direct method, indirect method, the wholediameter measuring way, the three ways to compare, the indirect methodis chosen as the final way to continue the following research. After hotmoney scale trend decomposition with BP filter method, we found that hotmoney in China is in a large scale flow of long-term trend, and short-termvolatility is significantly strengthened, suggesting that our country isstill a big hot money distribution market, and the hot money pressure isincreasing in our country, which increased the difficulty of theregulation. Then, we choose the GDP growth rate, CPI growth rate, theinterest rate gap between China and the United States, NDF(Non-deliverable Forwards), the Shanghai A-share index, real estateclimate index as the typical research variables to carry on the empiricalanalysis of the flows of hot money. Through Bai-Perron structure shiftinspection, we found that after experiencing the global subprime crisis, hot money system in China does not appear structural transformation,namely the selection of hot money investment pattern has not changed.Through the cointegration test we found five long-term equilibriumrelationships,showing that the interest rate gap between China and theUnited States, the GDP growth rate are the most important factors of thewhole system. Using the VEC model to explore the short-term volatilityof hot money impact factors, we found only NDF and real estate climateindex are factors that affect the flow of hot money short-termfluctuations. In addition, the real estate climate index is an importantinfluencing factor of both pulse test and variance decomposition, whichcan explain most of hot money change. Based on the conclusions above, thispaper presents some policy advices, including making effort to maintainthe stability of macro environment; maintaining the stability of thedomestic financial system, especially the interest rate and exchange rate;maintaining reasonable growth of the real estate market, etc.