Analysis Of The International Short-term Capital Flow On The Impact Of China’s Asset Price

After 2003, the global economic recovery contributed to international capital flows, international capital which flows into our country increased significantly Especially after the July 2005 exchange rate reform, the RMB appreciation is expected to strengthen.In order to seek arbitrage opportunities, a large scale of short-term international capital comes in and out of our country. Due to the lack of scientific and effective regulatory system, these profit-driven international capital comes to invest in the stock and real estate markets, which included in high-profit sectors. Once the economic situation worsened, highly sensitive international capital flees, it will definitely threaten China’s capital market and the real economy safety.Making the international short-term capital flow as the main line, we elaborate the basic connotation, characteristics, methods and motivation. We also analyzed the transmission mechanism of international short-term capital flows on China’s stock and real estate prices impacts. By combing the short-term international capital flows to economic shocks,it can provide valuable experience for our short-term international capital flows regulated.By building vector autoregression model, we make the empirical test of our short-term capital flows and the important factors, including stock prices, real estate prices,in different phases. Granger causality test concluded that:RMB exchange rate is the cause of short-term international capital flows and stock price movements, the exchange rate flexible space to expand, the stock price change is the cause of the real estate price changes. Forecast variance decomposition concluded that:in the beginning of the reform movements, the change of short-term international capital flow is caused by itself in 50%, and their related, drive asset prices affect the largest proportion,38%; after the exchange rate flexible space expanding, their short-term international capital flows explanatory power reached 82%, the rest of the factors of the explanatory power is more evenly.In order to better cope with short-term international capital flows, the impact of China’s economic security, our government should improve the regulatory mechanism on the basis of supporting, strengthening the supervision of short-term international capital flow channels, establish a dynamic monitoring mechanism, strengthen international cooperation, and gradually increase its current cost.