| Since 2012,China has witnessed an impressive development in its financial reform including market-oriented Renminbi interest rate and exchange rate reforms and capital account liberalization.At the same time,China also witnesses large decreases in its foreign reserve、big fluctuations and depreciation in the RMB versus US dollar exchange rate、significant increases in the uncertainty on its financial markets and macroeconomic development.It seems that China’s economic and financial issues are not exception according to the experiences of other countries.Since the collapse of The Bretton Woods System in early 1970s,cyclical economic and financial crises have broken out regionally and even globally,not only in those emerging and developing countries with their poor development in financial market and regulations after implementing financial liberalization reform in a radical way,but also in those developed countries with their highly developed financial markets and regulations.Though every economic and financial crisis had its own features,many economists emphasize the roles played by volatile and huge international capital flows that deeply changed the mechanism and environment of the economic and financial systems in the whole world and most countries.As the most important aspect of financial liberalization,capital account liberalization is a key policy that affects the mechanism and environment of the economic and financial systems in the whole world and most countries because it can completely change the size and structure of international capital flows.As a result,this study on the effects of capital account liberalization on the mechanism of financial asset prices and macro-economy is of great significance.Capital account liberalization is a comprehensive and time-consuming reform since it not only deals with capital flows under its several sub-accounts,but also coordinate with other financial reforms including market-oriented interest rate and exchange rate reforms.Besides,different countries can have very different approaches toward capital account liberalization including reform background、time choices、reform sequences and speed.This dissertation uses two target-oriented models including Time-Varying Parameter Vector Auto-regressive(TVP-VAR)Model and Panel Smooth Transition Regression(PSTR)Model to do empirical studies.Time-varying regression coefficients in TVP-VAR model can demonstrate the degree and time when the mechanism of financial asset prices change.Time-varying egression coefficients in PSTR model can demonstrate the degree and capital account openness level at which the mechanism of financial asset prices change.Financial asset prices are determined simultaneously by domestic and international financial conditions.We take the US financial markets represent the international financial markets as the US is a core country in the international financial system.In chapter three,applying the TVP-VAR(time-varying parameter VAR)model as approach,the empirical results shows that,the movement of the US interest rate has positive spillover effects on the interest rates in most countries and regions in the world.The size of the spillover effects depends on some key factors in the corresponding country including the level of capital account openness,exchange rate system,and the concordance in the business cycles with the US business cycles.Applying the PSTR(panel smooth transition regression)model as approach,empirical results show that,money market rates are very unstable while capital account is completely closed;money market rates are relatively unstable while capital account is mostly closed;money market rates are quite unstable at the beginning of capital account liberalization;money market rates become more and more stable as capital account becomes deeply liberalized,demonstrating possible "incentive mechanism"that capital account liberalization improves the quality and effectiveness of monetary policies through imposing disciplines on fiscal policies.In chapter four,the development processes and characteristics of external assets and liabilities of industrial countries group、developing countries group(without China)and China in the 1970-2011 period are analyzed.Then,the micro-structure model of foreign exchange market by Jeanne and Rose(2002)is used to show the important role played by noise traders on the exchange rate volatility under flexible exchange rate regime.Applying the TVP-VAR model as approach,the empirical results show that,the openness of capital account liberalization and the exchange rate regime plays a decisive role on the effects of the movements of the value of the US dollar on the exchange rate of corresponding currency.Applying the PSTR model as approach,empirical results show that,during the transition process from capital account closeness to preliminary liberalization,the size of volatility spillovers from stockmarket to the foreign exchange market increases,and the sizes of spillovers from shocks in international financial markets to the exchange rate volatilities jump up.In chapter five,international capital asset pricing models by Arouri(2012)and Errunza(1985)are used to show that the optimal portfolios、sources of systematic risks as well as risk premiums are different under different capital account openness levels(complete integration、complete segmentation、partial segmentation and considering exchange rate risks).Applying the TVP-VAR model as approach,the empirical results shows that,the more or the earlier an economy opens its capital account,the more its stock market will be affected by US stock market.Applying the PSTR model as approach,empirical results show that,during the transition process from capital account closeness to preliminary or basic liberalization,the size of volatility spillovers from the US stock market and VIX to the foreign exchange market both jump up.In chapter six,a general equilibrium model by Obstfeld(1984)is used to analyze the dynamic mechanism of economic expansion and contraction after capital account liberalization.Then,lessons learned from "Debt Crisis in Latin America"、"Financial Crisis in Asia"、"the US Sub-prime Crisis"、"the EU Debt Crisis" show that,financial crises are rooted in the serious disequilibrium of the balance of payment under the conditions of huge international capital flows,the US economic and financial conditions as well as monetary policies play a key role on the economic and financial circles in the countries with liberalized capital account.In chapter seven,according to the estimated China’s capital account liberalization level and RMB foreign exchange pressure,China’s capital account liberalization can lead to the movement of its balance of payment and RMB exchange rate toward more balanced and equilibrium levels.Then,empirical result using PSTR model show that,the global effects of China’s stock market and RMB exchange rate are still very limited.China should expand its capital account liberalization in order to achieve RMB internationalization and share its financial risks globally.Chapter eight gives conclusions and advocacy. |
