The Study On The Impact Of International Capital Flows On The Current China’s Monetary Policy Effect

After the1990s,the scale of the international capital flows expanded rapidly to an unprecedented level in our country. On the other hand, our country’s monetary policy has been adjusted to the moderately loose policy from prudent in response to the global financial crisis in2008. However, the effect of our monetary policy which has returned to normality is under expectations. This can’t be separated with the change of the international capital flows at that time, because large-scale international capital flows exerted a great influence on the implementation effect of China’s monetary policy.Under this background, it is quite important to discuss the influence of international capital flows on China’s current prudent monetary policy based on the qualitative and quantitative analysis. First of all, the article use the experience of the practical experience and the empirical research shows that expectations of exchange rate changes, real assets value, stock market returns and degree of China’s opening to the outside world are important factors affecting China’s international capital flows. Secondly, the article through the qualitative analysis using money supply model, we can find, either international capital inflows or outflows will impact an influence on monetary policy in our country and further analysis through the improved Mundell-Fleming theory model can conclude that capital flows would weaken the effect of monetary policy. On this basis, further analyses of the article on the influence degree via VAR model shows, the effects of foreign exchange reserves on the money supply is mainly manifested in the short term, and is still the important influencing factors.However, with China’s exchange rate appreciation is expected to decline, the downturn in the real estate market and the slump of stock market, China’s international capital inflows slowed down markedly. Coupled with the implementation of the system of settlement and sales of foreign exchange to wish, the international capital flows we faced exists greater uncertainty. Therefore, in order to fill the blank of the main channel of funds outstanding for foreign exchange passive money supply, our country adopted more flexible ways to open market operations about the reverse repurchase, in order to reduce the effect of international capital flows uncertainty on our monetary policy implementation. Although the reduced value of funds outstanding for foreign exchange lessens the effect of international capital flows on the monetary policy, does not mean that the effect of funds outstanding for foreign exchange on the monetary policy disappears. The unusual international capital flows still threaten the effectiveness of China’s monetary policy. Based on this, we can consider increasing the flexibility of the RMB exchange rate, regulating foreign investment in China’s housing market and stock market access, and improving the monitoring and management of capital flows at the same time to reduce the influence of capital flows on China’s monetary policy independence and achieve the expected effect of monetary policy better.