Foreign Capital Inflow,real Exchange Rate And Government Policy

During the past 30 years of reform and opening up in China, the country’s opening-up process has followed the principle of gradual relaxation of capital controls steadily.while the exchange rate has become the core issue in the process. Because the capital flows between countries will inevitably impact on our country’s foreign exchange market,bringing uncertainty to the RMB exchange rate, thus affecting macroeconomic operation. It isn’t Difficult to find that with deepening the process of opening up in China,it has become the largest developing countries attracting foreign capital since 1993. QFII and Shanghai-Hong Kong connect program in recent years will push a large number of international overseas blood into a-share market.Therefore,cross-border capital has been a considerable size flowing into our country, which will inevitably bring changes in the structure of China’s stock and assets market, finally affecting the RMB exchange rate fluctuations. Therefore, this paper aims to use the experience of the existing data to explore the relationship between the two movements of international capital flows and the exchange rate.And providing proposal suggestion which is based on the policy variable in the model.capital flows affect a wide range of economic variables such as exchange rates,interest rates,foreign exchange reserves,domestic monetary conditions as well as savings and investments.On the other hand, during the period of the US financial crisis, American government carried out its quantitative easing policy, which released a lot of dollars into Chinese market for arbitraging,leading Chinese basic money increased passive, increasing domestic inflationary China. The exchange rate changes will not only affect the domestic financial stability also reduces the investment interest of foreign investors, thereby maintaining a relatively stable exchange rate has become one of the guarantees healthy economic development.According to International Monetary Fund(IMF) definition of managed floating exchange rate(Managed Floating Exchange Rate) refers to government intervention in the foreign exchange market in order to maintain regular exchange rate in favor of the direction of change in the country’s economic development. Therefore, this paper combined with the actual situation in China, the establishment of relevant model theoretically explain the relationship between RMB exchange market pressure index and capital flows. Using Empirical model to analyze the policy of dampening down an appreciation in the real exchange rate of RMB.The main findings are as follows:There existences cointegration equation between real exchange rate and capital flows at the 5% significance level, capital inflows increase the proportion of GDP per a unit value of the real effective exchange rate will increase 0.36 units.Sterilized intervention,loosening capital outflows and fiscal policy can choke back exchange rate appreciation in a certain degree.