Research On Impact Of The International Capital Flow Reversal To China’s Monetary Policy

Against the backdrop of economic globalization,the connected effect of international capital flows has been more and more obvious.In 2012,China’s capital and financial account appeared a ＄117.3 billion deficit,it’s the first time since 1998 and broken the double surplus which exist for a long term,the foreign exchange reserves continued to decline in 2015.Figures show that in January 2017,China’s foreign exchange reserves has fallen below $3 trillion.And the Central Bank declared ￥21.68 trillion Position for Forex Purchase in the end of February 2017,it reduced￥58.119 billion compared with that in January and has been declining for sixteen months.Under the background of international capital flows to reverse,how to coordinate the relationship between the capital flows and monetary policy,and enhance the monetary policy’s foresight and effectiveness,which has been an important subject for the monetary authority.This paperis based on the previous studies,building the DSGE model of two countries in a small open economy,including family,manufacturer(monopolisticcompetition),entrepreneursand the government.The paper picks values from the first quarter of 2012 to the fourth quarter of 2016,then makes estimation by the calibration method and Bayes estimation,contrasts different economic variables’ response to the monetary policy.It can be seen from the analysis and the pulse scheme that the international capital flow reverses makes a lot of adverse effects on economy.The main conclusion in the paper are as follows:Firstly,economic variables(output,money supply,interest rate,inflation rate)react most strongly to international capital flow reversals under the Fix E regulation,and this regulation has the greatest impact on economy;Secondly,the NTP and CPI regulation have their own merits and defects,economic variables show the greater stability under the NTP regulation,smaller response range but greater undulation under the CPI regulation.When the central bank wants to adjust and control economy in a short term,he should try the CPI regulation;But when the purpose is to keep economy growing steadily,the NTP regulation will be a better choice.