Time-Varying Characteristics Of The Driving Factors Of China's Short-term Capital Flows In The Process Of Financial Liberalization

Research on the driving factors affecting short-term capital flows has always been a hot topic in academia.In the context of China's financial opening up,the outbreak of coronavirus disease around the world in early 2020 caused violent fluctuations in global financial markets,which will have an impact on the stability of domestic financial market through the channel of short-term capital flows.Therefore,clarifying the driving factors of China's short-term capital flows and their time-varying characteristics will play a key role in continuing to open the financial sector steadily and maintaining financial stability.This paper constructs a theoretical model which introduces the time-varying mechanism how eight driving factors influence on China's short-term capital flows.Furthermore,the time-varying parameter vector autoregressive model based on the monthly data from January 2000 to September 2019 is used to perform an empirical test.The results suggest that firstly,the impact mechanisms of VIX index,interest rate differential between China and the U.S.,exchange rate expectation,inflation rate and asset prices on short-term capital flows have undergone significant time-varying structural changes during the sample period.Besides,there are two important structural points which are the prophase of international financial crisis in 2007 as well as the transformation of China's internal and external economic environment in 2013 respectively.Although capital account control policy could help China to prevent and resist external financial risk shocks,the time-varying pulse curve of each variable shows a sharp fluctuation after the financial crisis,which is closely related to the acceleration of the capital account opening process.Based on the above findings,on the one hand,the regulatory authorities should keep paying attention to the changing trends of various drivers as well as improve the macro-prudential regulatory framework for China's short-term capital flows in order to maintain financial stability.On the other hand,the opening process of capital account should follow the general rules of economic development and be carried out under the premise of full marketization of RMB interest rate and exchange rate formation mechanism,which is not supposed to be hasty.