The Influence Of International Capital Flows On The Effectiveness Of Chinese Monetary Policy

Under the background of economic globalization, the openness of national economies increasingly deep, the international capital flows presents the trend of liberalization, the scale and speed of capital flows significantly. Capital flows have become an integral part of the openness of the economy, and play an increasingly important role for the economic development of countries. Since China implements reform and opening up, foreign economic exchanges increasing the country’s economy and social development has witnessed enoimous changes. Since the open of current account in 1996 and the government’s control to capital account fastened, more and more international capital flow into China through Various channels, which not only promote social and economic development of our country, but also increase the difficulty of country’s macro-control. From 2001, both of current account and capital account maintain surplus, and the great amount of capital inflows make foreign exchange reserves increase sharply. At the end of 2013, the accumulated balance of foreign exchange reserves reached $ 3.8 trillion, which is nearly 500 billion larger than the amount in 2012. In order to maintain the stability of China’s economy, central bank intervened the foreign exchange market, resulting in a substantial increase in foreign exchange, the domestic money supply significantly expanded, more and more people began to question effectiveness of China’s monetary policy. Therefore, carry out effective monetary policy against the influence from international capital flows has become the top priority of central bank.Research on effectiveness of international capital flows and monetary policy under the open economy has great practical significance above the status quo. Article follows the order of "reviewing literature - discussing the theoretical - reality analysis - empirical analysis -problem-suggestions and ideas". First, reviewed the literature and described the concept of international capital flows and the classical model. Then divided the stages of capital flows since 2001 and analyzed the effectiveness of monetary policy effects under each stage. Based on the theory and reality, article analyzed impact of international capital flows on monetary policy effectiveness from the intermediate target of monetary policy and the ultimate goal of the two-level by establishing an empirical model.The study shows that with the development of international capital flows, capital flows not only to our country more and more important impact on the intermediate target of monetary policy, the ultimate goal of contribution and influence also gradually enhanced. Therefore, we should manage the scale of international capital flows and to improve the effectiveness of monetary policy.