The Short-term Capital Flows,The Fluctuation Of Exchange Rate And The Price Changes

Since entering the 21st century,China has been faced with complicated and changeable domestic and international situations,so it is necessary to grasp the trend of exchange rate fluctuations,price changes and capital flows as the research direction.In July 2005,we initiated the first exchange rate reform since the beginning of the 21st century,introducing the floating exchange rate determination mechanism into our exchange rate system,but not giving up the government's control over the RMB exchange rate.At this time,China's RMB exchange rate was affected by favorable factors at home and abroad and began to rise for a period of time.For five years before the U.S.subprime mortgage crisis in 2008,excluding individual time decline,when most of the RMB exchange rate has been rising,but into crisis after the sixth year,the us-led western countries to phase out the quantitative easing policy,the RMB exchange rate compared with the world's major countries,started a long time to fall.Since the world financial tsunami in 2008,the western world led by the United States began to inject a large amount of money into the market to cope with the economic recession,which is known as quantitative easing monetary policy.Quantitative easing monetary policy is born to solve the large number of unemployment caused by rapid economic recession.It is a powerful medicine against economic recession.The inflation brought by it has diluted the wealth of the general public in the society,and contributed to the widening of the wealth gap.In western countries,on the other hand,the Quantitative Easing policy to promote foreign investment,many international capital has accelerated the major emerging market countries,including China,hot money inflow largely promotes the rising of RMB exchange rate,the main western countries out of QE(policy)led to a significant number of hot money flow,obviously will have negative effect on the yuan.In 2016,China joined the International Monetary Fund and admitted RMB into the Special Drawing Right,which marks a milestone in the internationalization of RMB and its International status is generally recognized by the International community.After 2018,influenced by the interest rate hike by the federal reserve and the trade dispute between China and the United States,capital flows and exchange rate fluctuations have undergone new changes.The volatile international situation requires us to grasp the relationship between short-term cross-border capital flows,exchange rate fluctuations and price changes.After careful reading of the existing literature,it can be found that many literature studies are limited to the relationship between two variables,and the models used for empirical studies are too traditional.The traditional VAR model sets the VAR coefficient and the variance of the disturbance term,which is quite different from the actual situation.Traditional models seldom consider time-varying factors,such as the policy goals,economic structure,economic system and level of science and technology are all exert significant influence of time-varying factors,the time-varying factors will affect the relevant economic models of some parameters,this kind of economic variables of dynamic change needs a more sophisticated econometric model to deal with,the traditional VAR obviously cannot handle such a complicated economic variables.Tvp-var(vector autoregression model with time-varying parameters)can handle complex time-varying factors well,considering the influence of time-varying factors on parameters and variables.Firstly,this paper constructs theoretical models of short-term cross-border capital flows,RMB exchange rate fluctuations and price changes,selects three indicators of short-term cross-border capital,RMB exchange rate against the us dollar and CPI,establishes appropriate theoretical models for the three,and explains their theoretical relations.Then the stationarity of time series was judged by ADF test.The monthly data from August 2005 to December 2018 were combined with the vector autoregression model of time-varying parameters to do relevant research.The interaction of time-varying parameters of the three variables is analyzed from four aspects,namely,time-varying characteristic relationship of the influence of variables on the same period,time-varying characteristic relationship of variable volatility,time-varying characteristic relationship of time-varying characteristic relationship of different lead time and time-varying characteristic relationship of different time points.Through empirical analysis,this paper finds that the relationship between exchange rate fluctuations,short-term cross-border capital flows and price index changes is complex and changeable,and the performance of the three is affected by the change of conditions,that is,the linkage between the three is closely related to time.In the past,the influence relationship among the three was considered to be unique,but the interaction between RMB exchange rate fluctuations,short-term cross-border capital flows and price changes is time-varying and complex.Specifically,the following conclusions can be drawn:(1)short-term cross-border capital and RMB exchange rate can have a great influence on each other in the current period;(2)short-term cross-border capital inflow in the current period will lower the price index,which is due to the market substitution effect of capital flow and will promote inflation in the long run.(3)RMB exchange rate and price index interact through the special "bridge" of capital flow.