Capital Account Liberalization And Financial Crises

Financial globalization has been promoting global economic growth and development, but also contributing to global financial instability. Since the 1990s, many financial crises and the occurrence of a highly contagious performance make domestic and foreign scholars increasingly concerning about the relationship between capital account openness and financial crises. As China's international status and degree of integration into the world economy improved, how to conform to the global trend of gradually opening up the capital account, and at the same time safeguarding our country's economic security, in-depth exploring the role of capital account openness in the financial crisis and its contagion, setting down appropriate capital account liberalization policy to prevent the occurrence of financial crisis and contagion effectively, is particularly important for present China.Based on comparative analysis of the existing models of the financial crisis, the dissertation learns from the predecessors of the fragility of the macroeconomic and expectation to explain financial crises. At the same time, it set up a financial crises model with a microcosmic basis and a financial contagion model with multiple equilibria, by introducing the capital account opening variable quantitatively into the models. On this basis, after testing the theoretical model by using the data of the Southeast Asian crisis, an application has been done to the model using the data of China. The empirical results show that the macroeconomic fundamentals of China are now weak in a vulnerable and unstable region with multiple equilibria. Outside shocks through trade, information and expectations, could lead to a financial crisis. Finally, in view of the current situation, simulations have been made to predict the possibility of financial crisis in China under different capital account liberalization policy, different domestic and foreign interest rate, different appreciation extent of renminbi and China's inflation rate. And in accordance with Simulation results, corresponding policy recommendations have been brought forward to make China's economic fundamentals jump out the region with multiple equilibria, and to reduce China's potential financial risks, effectively preventing the occurrence of the financial crisis in China, yet to achieve China's fast economic development.In this paper, the main innovations include the hereinafter several aspects:(1) In this dissertation, a financial crisis model has been established with a microcosmic basis. With the comprehensive study of the role of capital account openness, the domestic economic fundamentals and the expectation in financial crises, the paper also has analyzed the effect of a variety of domestic and foreign interest rate differentials and a different level of domestic inflation on the possibility of a financial crisis affected.(2) In this dissertation, a financial contagion model with multiple equilibria has been built up. The model illustrates four channels by which crises can propagate contemporary introducing capital account openness. The four channels are monsoon effect, spillovers, the self-fulfilling devaluation expectations and the expected probability for country b to experience a crisis.(3) By comparing various types of measurement methods of capital account openness, an improved measurement method which can facilitate the empirical research and more accurate depict the degree of capital account openness has been put forward. After quantity the capital accounts openness, it has been introduced to the financial crisis model. A quantitative and qualitative analysis of the influence of capital account opening in the occurring and spreading of financial crises has been made, providing decision-making information to keep countries such as China which are carrying through financial deepening reforms and further opening up the capital account, away from financial crisis provides.(4) After testing the above academic models by the data of Southeast Asian financial crisis, an application has been made to the financial crisis model by using the data of China. Combining the status quo of China's economy, a simulation has been made to predict the probability of financial crisis in size in China. According to the simulation results, relevant recommendations and policies have been put forward to guard against the occurrence of financial crisis in China, providing a new way of warning for the prevention of financial crisis.