The Impact Of The Federal Reserve's Interest Rate Hike On China's Short-term Cross-border Capital Flows

Along with the continuous recovery of the US economy and the development of various economic indicators beyond expectations,the Federal Reserve officially launched a round of interest rate hikes in December 2015,ending the unconventional monetary policy that the seven-year benchmark interest rate has been close to zero.As the world's largest economy,the United States is at the heart of the global economy.The new round of interest rate hikes initiated by the Fed will have a major impact on the economies of other countries through interest rate channels and exchange rate channels.Studying the impact of the sudden shift of the Fed's monetary policy on China's short-term cross-border capital flows will help the monetary authorities to scientifically favorable regulation of short-term cross-border capital flows,formulate a rich and effective way to strengthen the management of cross-border capital flows and decrease the negative influence of the Fed's interest rate hike cycle on China's shortterm cross-border capital flows.This paper adopts a research method combining theoretical analysis and empirical analysis.This paper firstly reviews the relevant literature on the Fed's monetary policy spillover effect,defines short-term cross-border capital,and provides a general overview of the theoretical basis of cross-border capital and the transmission channels of the Fed's monetary policy spillover effect,and analyzes the current situation of shortterm cross-border capital flows in China at the same time,and then the reasons for the short-term cross-border capital flow changes in China are analyzed.Finally,this paper uses SHIBOR interest rate,US federal funds rate,RMB real effective exchange rate index and China's short-term cross-border capital inflow to construct TVP-VAR model for empirical analysis.And make relevant policy recommendations.The empirical results show that the Fed's interest rate hike will cause China's shortterm cross-border capital flows to show an outflow situation,and the US federal funds rate has a negative spillover effect on China's short-term cross-border capital inflows.The empirical analysis also analyzes how the Fed rate hike affects China's short-term cross-border capital inflows through interest rate channels and exchange rate channels.Interest rate channel: There is a positive relationship between the federal funds rate and SHIBOR rate.Spread between China and the United States narrows when the Fed increases rate.Therefore,China's cross-border capital is facing an outflow,but China's interest rate rises with US interest rates until the interest rates of the two countries are balanced,short-term cross-border capital inflows will reach a new equilibrium.In terms of exchange rate channels: the Fed's interest rate hike will depreciate the RMB exchange rate in China,and the depreciation of the RMB exchange rate will cause China's short-term cross-border capital outflows.However,over time,the depreciation of the RMB exchange rate will lead to a decrease in export and a growth in imports that promote the flow of short-term cross-border capital into our country until it reaches equilibrium.The impact of the US federal funds rate and the Fed rate hike on China's short-term cross-border capital inflows through interest rate channels and exchange rate channels are generally small and weakening.In response to the above conclusions,at the end of the article,relevant policy recommendations were put forward from four aspects,namely,promoting the degree of RMB internationalization,improving the RMB exchange rate formation mechanism,accelerating the interest rate marketization level,and improving the effectiveness of foreign exchange supervision.