A Study Of International Short-term Capital Flows And The Effectiveness Of Capital Control In Chian

Since the global financial crisis in2008, the emerging markets and developing economies have led the world’s recovery-accounting for remarkable three-quarters of global growth. As in sharp contrast, the flare-up of the European debt crisis and Washington gridlock cast a shadow on the recovery process in developed countries. Facing anemic recovery and rising government indebtedness, easy monetary policy and low interest rates has been taken in developed countries which created the incentive for further speculative money to flow into emerging markets. The net inflow of international capital has surged above pre-crisis levels. The international short-term capital has characteristics of no national boundaries, large capacity, high velocity and high speculative, which gives its inherently high liquidity, high risk and endogenous vulnerability. This undoubtedly will amplify the instability of financial market and economic. Capital controls has become the focus for economists and governments once again. Therefore, the study of the international short-term capital flows, international capital control practice, as well as the effectiveness of capital controls in China has important theoretical and realistic significance to the Chinese capital account liberalization.In the research of capital control, most literatures take the effectiveness of capital controls in particular period for a specific country or countries as the object of study, while the theoretical research on the determinants of capital control is little. This thesis has the following research. l)Based on the welfare perspective, using multi-stage optimal control technique to construct the capital control theory model, and has an empirical test for the theoretical model with a panel data model.2) Has research thoroughly on the international short-term capital flow characteristics and international capital control.3) Meanwhile, using statistical analysis, linear regression, and VAR etc empirical research method, analysis the influencing factors of capital flow in China in economic and policy perspective by dividing the flow of international capital into net capital flows, total capital inflows and total capital outflows.4) Sum up the stage the characteristics of China’s capital controls, and measuring the intensity of capital control in China directly and indirectly.5) Has empirical study on the effectiveness of capital controls in China by indirectly quantitative analysis. Main conclusions of this thesis include:1) it is optimal to carry out capital account liberalization whenever the total wealth is above the total expenditure in finite time, and to carry out capital control forever when it is not meet. The liberalization of capital account is asymptotically orderly while the instant realization of capital account liberalization or permanent capital controls is suboptimal.2) The international short-term capital becomes the "invisible hand" in the international financial market. In order to avoid the negative impact of international short-term capital flow on the country’s financial system and macro economy, capital controls have been accepted and implemented in most developing countries and some developed countries in varying degrees. In fact as the opposite of capital account liberalization, capital controls haven’t been eliminated thoroughly in developed countries, just there are some differences in the intensity area and regulations of capital controls compared with developing countries.3) The total international short-term capital flow accounts for more than80%of total international capital flow in China. The economic factors and policy factors have influence on the net international short-term capital flow, international short-term capital inflows, and international short-term capital outflows in different degree and direction.4) Have empirical study on the effectiveness of capital controls in China by adopting the static and dynamic Invest and save correlation model, the deviation from uncovered interest rate condition, and simultaneous equations of offset and sterilization coefficient respectively. The results show that the capital controls in China are effective in the short term, but in the long term the effectiveness decreased obviously. Therefore, as the intensity of capital controls in China’s being weakened gradually, and the international economic environment being complicated, although the effectiveness of capital control in China are facing challenges, capital control is still an effective monetary policy tools in China to handle the impact of international short-term capital in a short period.The main innovation of this thesis includes four aspects. l)Based on maximizing welfare, using multi-stage optimal control technique construct the capital control theory model, by which get the precondition for the implementation of capital control. Capital controls are means to realize capital account liberalization steadily, rather than the baffle of capital account liberalization, there is no contradiction between them.2) Divide the international short-term capital flow in China into stock and flow, while the stock of international short-term capital flow is measured by the net flows, and the flow is reflected in total international short-term capital flow in and flow out. And analysis the influencing factors of capital flow in China in economic and policy perspective. By this way, we can get the degree and directions of each factor to the international short-term capital flow more objectively.3) Construct an index system for the strength of capital control in China based on AREAER. Open a new thinking for the follow-up study of capital control. More indexes can be included in this system, and the form of the index can be more diversify.4) Using a variety of methods and empirical test to measure the effectiveness of capital controls in China indirectly, which are much more systematical in this study.