| More than three decades have passed, China has become the second largest economy worldwide. And our country had completely opened its current account in the year 1996. But its capital and financial account is not fully open yet. Along with the procedure of the deepening of financial internationalization, China is accelerating its paces in opening capital and financial account. And the 13 th Five-year plan recently forwarded “To realize capital and financial account convertibility in order”.One important question in the procedure of capital and financial account opening is that how to deal with the side effects that capital flows may bring to our economy after the capital and financial account is open, and consequently let our country fully benefit from it. As exchange rate is an important factor affecting a country’s participation in international economic activities, the exchange rate stability is the important guarantee to the healthy operation of our economy. According to the practice of opening capital and financial account in many other countries, the impacts that is given to exchange rate differ. So does opening capital and financial account affect RMB exchange rate? If so, what kind of law does it follow? This is the question that this paper tries to discuss and answer.The first part of this paper introduced the back ground, and expatiated the importance of studying the relationship between opening capital and financial account and RMB exchange rate. Also sorted out the research results and the latest progress in this field.The second part firstly defined the concept of capital and financial account and the opening of capital and financial account opening. And then tried to find the theoretical basis of the relationship between capital and financial account opening and exchange rate. Lastly expatiated the mechanism by which capital and financial account opening influences exchange rate.The third part carried out the descriptive analysis of the two factors. According to the formation mechanism of the RMB exchange rate adjustment in history, this paper divided the whole time period into three parts and discussed how opening capital and financial count opening may function in these three different period according to the specific circumstances in that period of time.The fourth part is the empirical analysis of this paper. Firstly calculated the openness of capital and financial account. And then built up a empirical model by using the behavioral equilibrium exchange rate model. By which this paper verified the impact of capital and financial account opening on the RMB real effective exchange rate fluctuations. After the ADF unit root test and cointegration test were carried out on time series data, the vector auto regression model was established.On one hand,with the analysis of the impulse response graph, this paper found that in many factors, the opening of capital and financial account is one of the biggest impacts on exchange rate. It has positive effects and the positive effects are still evident in a long period of time. On the other hand, the variance decomposition also shows that the openness of capital and financial projects has a very significant impact on the volatility of the RMB exchange rate, and the size of the impact degree is given through the specific values.The empirical results show that there is a stable long-term cointegration relationship between China’s capital and financial account opening and RMB exchange rate. Granger causality test shows that the opening of capital and financial account is the Granger cause of RMB real effective exchange rate.The fifth part forwarded policy proposals. This paper holds that our country should pay attention to domestic economic stability as well as the improvement of interest rate market and the exchange rate formation mechanism etc.The innovation of this paper may lies in that this paper tried to expatiate how capital and financial opening gives impacts to RMB exchange rate by using empirical methods.Exchange rate fluctuations in this paper refers to the appreciation and depreciation. |
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