| In order to research Macroeconomic effects of capital account liberalization, this paper divide the process of China capital account liberalization into three periods. They are: (1)1979-1992; (2)1993-2000; (3)2001-. After that, this paper use quantitative methods to measure the account liberalization, so that we know the validity of this division. As we know that, this paper divides the sample from the first quarter of 1993 to the forth quarter of 2008 into two sub-samples, which boundary is 2001. VAR model is used to examine Macroeconomic effects of capital account liberalization. The results show that capital account liberalization has changed the contracture of capital flows. In 1993-2000, the most part of capital flows are explained by current account shocks. By the same token, capital account movements are explained more by their own shocks. The influences on macroeconomic variables of capital flows are different between 1993-2000 period and 2001-2008 period. Compared to the influences of capital flows in 1993-2000, it is more acute and sensitive.The influence on output of capital account liberalization includes:1. In 1993-2000 period, the response on real GDP of capital flows was more slightly. And in 2001-2008 period, it is more acute and intensive.2. In 1993-2000 period, the capital flows would decrease output slightly. After the capital account liberalization, it would increase real GDP.The influence on price of capital account liberalization includes:In 1993-2000 period, after 1 quarter, the capital flows would decrease price level. And after 7 quarters, this effect is most intensive. And in 2001-2008 period, the capital flows would increase the price level. After 2 quarters, the capital flows would increase price level. And after 3 quarters, this effect is most intensive. I think there are two possible reasons:1. 1990s, the goods in China market still are shortage. The capital inflows are mostly used in investment. The investment would increase goods supply, which can decease price level.2. After 2001, the capital account liberalization made more capital flows which ?are not direct investment to flow into China. We call them "hot money". These money buy real estate, stocks and so on. The money supply increase sharply.In both periods, capital account shocks can increase money supply. But they also have something different, in 2001-2008 period, the response of money supply vanishes more slowly than that in 1993-2008 period, which means that the capital account shocks will influence money supply longer in 2001-2008. And that in 1993-2000 vanished more quickly. The reason may be that the capital inflows which are not indirect investment are more in 2001-2008. Because of the pursuit of profit, they are used in market more quickly and the ways of investment are often changed. That will lead the increase of money supply and reinvestment. Therefore, the influence would keep a longer time. In 1993-2000, most of capital inflows are indirect investment, it cost more time before they are really invested and the ways of investment usually are restricted.Capital account liberalization would cause a Boom-bust cycles. Capital account liberalization leads to an initial period of capital surges, real exchange rate appreciation, domestic credit expansion, consumption and investment boom and asset price bubbles. Over time, however, the process tends to reserve itself: real exchange rate appreciation worsens the international competitiveness of firms, which influences foreign investors to negatively views the domestic market and withdraw capital investment. Therefore, net capital inflows decline and eventually net capital outflows start, which reveres the "boom" phase and starts the "bust" phase.Capital account liberalization has caused great changes on macroeconomics in China. We can not stop that, and it has taken a lot benefits. However, in order to prevent Boom-bust cycles, supervision of capital can not be removed completely. Besides, we should build a reasonable exchange rate policy. As the deeper liberalization of capital account, we should build a efficient and safe supervision of capital account as soon as possible. At the same time, we should adopt reasonable exchange rate policy in order to prevent the deterioration of current account and the decrease of China's competition caused by the appreciation of RMB. |
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