A Study On The Impact Of Short-term Capital Flows On Monetary Policy Of China

With the development of global economy and financial integration,capital flows are becoming more and more frequent in the world.The development of science and technology has facilitated the realization of cross-border transfer in the short time.In view of the deepening of China's opening to the outside world,the gradual liberalization of capital control is a general trend,a lot of capital,especially speculative short-term capital frequently flows in and out of China through various channels,and its impact on our country is more and more obvious.These short-term capital flows are confusing,and the scale of movement fluctuates.Since China's accession to the World Trade Organization,China has maintained a "double surplus"situation,foreign exchange reserves are also increasing,according to the State Administration of Foreign Exchange data released,China's foreign exchange reserves reached a maximum of 39932 billion US dollars.But in recent years,China's ongoing "double surplus" situation has been broken,according to the balance of payments data,China ushered capital and financial account deficit in 2012 for the first time,the last three quarters of 2014,2015 and 2016,capital and financial accounts showed varying degrees of trade deficit.With the Federal Reserve withdraw from the quantitative easing policy,played a set of "raise interest rate +shrink the balance sheet" combination boxing,the RMB is facing devaluation pressure,China began to face a clear outflow of short-term capital situation.The change in the short-term capital flows and the ups and downs of its size not only disrupt the financial market order,affect the stable development of the economy,but also increase the difficulty of monetary policy operation,it will weaken the effectiveness of monetary policy(Song Cui-ling,2014).In the next period of time,China may face a new phenomenon of short-term capital entry and exit,which will seriously damage the stability of China's financial system.In this case,to reduce passive interference of the short-term capital flows on the monetary policy and ensure China's financial market security and stability,reasonable and effective guidance and prevention of short-term capital flows is an important issue that China's central banks will be face.Scholars at home and abroad have done a lot of research about the impact of short-term capital flows on monetary policy,formed a systematic theoretical system,but there are some shortcomings and deficiencies.The research on short-term capital flows in foreign literature mainly focuses on the influencing factors of short-term capital flows,the influence on the host country and the capital flight before and after the financial crisis in Southeast Asia in the 1990s,and the research object does not include China,mainly concentrated,in East Asia and Latin America and other countries.The research contents of domestic literature mainly focus on the scale measurement and influencing factors of short-term capital flows.The research on the influence of short-term capital flows on monetary policy is relatively small,and the research on scattered,general and empirical aspects is relatively simple.There are no effective combination of theory and practice.On the basis of previous studies,this paper analyzes the influence of short-term capital flow on monetary policy,and then selects the four variables,short-term capital flow,money supply,interest rate and inflation rate.And build(VAR)model and time-varying parameter vector autoregressive(TVP-VAR)model and impulse response function on the monthly data from January 2000 to April 2017,to explore the impact of short-term capital flows on China's monetary policy.Mainly the following points are found:First,short-term capital flows SCF,interest rate R,money supply first-order difference DM1,inflation first-order differential DCPI and PRO,these variables have a long-term stable equilibrium relationship.Second,there is a two-way causal relationship between international short-term capital flows and money supply,short-term capital flows and interest rates are also two-way causal relationship,this shows that the international short-term capital flows on China's monetary policy implementation had a significant impact,although the China's capital account has not been fully open and the interest rate is not fully marketed,the arbitrage motives of short-term capital in and out of our country have become obvious,and the relationship between international short-term capital flows and interest rate has been very strong.Third,the rise in the supply of money from international short-term capital flows has been offset by the regulation of the national monetary policy,and the write-off is too large.However,during the period from 2008 to 2014,the response of the money supply to short-term capital shocks was positive,indicating that the central bank's write-off was not significant during this period.Fourth,the inflow of short-term capital will push up inflation in our country,and the impact in the short term will be stronger than the long-term impact.In recent years,China is facing short-term capital outflow situation,there is a certain degree of attenuation on the impact of inflation.Finally,based on the impact of short-term capital flows on monetary policy,the corresponding policy recommendations are given:to further strengthen monitoring and supervision of short-term capital flows,promote the reform of China's interest rate marketization,deepen the reform of China's exchange rate system,guarantee the independence of money supply,and prevent the impact of short-term capital flows on inflation.