Dynamic Impact Of Hot Money Flows On China's Economy

In recent years,global economic integration and continuous integration of financial markets have intensified the flow of short-term international capital.As China gradually opens up to the outside world,hot money flows into China are becoming more frequent.Since the exchange rate reform in 2005,it is generally expected that the RMB will appreciate.A lot of hot money will flow into China,and hot money will try to arbitrage from the appreciation of the RMB.In 2008,the financial crisis spread all over the world.In order to cope with the financial crisis,the Federal Reserve implemented quantitative easing monetary policy,resulting in excess liquidity.With the opening of capital account,China is one of the main countries attracting hot money.In the process of building a new open economy,deepening the reform of RMB exchange rate formation mechanism and improving the stock market,it is of great significance to study the effect of hot money flows on China's economy.This paper describes China's economy with five economic variables:stock price,real output,exchange rate expectation,short-term interest rate and stock fluctuation,and analyses the dynamic effect of hot money flows on China.This paper firstly sorts out the existing researches on hot money,and then analyzes the definition,characteristics,scale,causes and channels of hot money flow in China.At last,the monthly data of hot money,actual output,exchange rate expectation,short-term interest rate and stock volatility from 2000.1-2018.6 are sorted out and analyzed.Proxy SVAR is adopted to study the dynamic impact of hot money flows on Chinese economy.The results of Proxy SVAR model show that when hot money is given a unit of positive impact,that is,hot money inflow increases stock price,increases real output,reduces short-term interest rate,promotes the appreciation expectation of RMB exchange rate and slows down the fluctuation of stock market.The Forecast-error Variance Decomposition results of the Proxy SVAR model hot money explained the exchange rate expectation strongly.Finally,some Suggestions are put forward.