Capital Controls,Capital Flows And Exchange Rate Regime Options

In recent years,various forms of international capital have flowed into emerging market countries on a large scale,bringing considerable price fluctuations to their foreign exchange markets and even influencing the choice of a country’s exchange rate system.At the same time,the effectiveness of capital controls seems to be weakened by the tendency of capital flows to fluctuate frequently.Existing studies believe that capital control,as an administrative means,reflects a country’s attitude towards the marketization of the economy.Countries with more stringent controls tend to prefer the economic system under the guidance of the government,and the exchange rate system tends to be fixed.Under the condition that capital flow and control will affect a country’s exchange rate choice,it is meaningful to bring the three factors into the unified framework to judge the core influencing factors of exchange rate system choice.We can’t help but wonder whether capital controls and capital flows affect the choice of exchange rate regime as a single variable,or whether they affect the choice of exchange rate regime as two related variables?Is there a mediating effect of one variable such as capital controls indirectly affecting the score of the exchange rate regime through another such as capital flows?To the above question discussion to the future development of exchange rate system in China provides a new train of thought,this paper will be based on a global scale to the empirical analysis of data,on the basis of abundant literature help us to judge a country’s exchange rate system core factors,from the perspective of capital flows,for our country put forward the corresponding policy recommendations,and evaluate the rationality of the current exchange rate system in our country.In this paper,the fixed effect regression model of panel data and the mediating effect model with capital control as the mediating variable were firstly constructed,and the panel data of the selected variables were basically tested,including the stationarity test,co-integration test and Granger causality test.Subsequently,F test and hausmann test were used to determine the model effect and then the model,so as to obtain the optimal panel data regression results.Finally,through the mediating effect model,we judge whether there is a mediating effect between the flow and the exchange rate system score caused by regulatory variables.In the specific empirical analysis,the following conclusions are drawn:1.The impact of capital controls on capital flows is limited.The impact of different measures and degree of capital control on a country’s capital flow level is different,but if the type of control measures is not detailed,its impact on long-term capital flow seems to be more obvious,but the relationship between and short-term capital flow is not significant.2.Capital control is believed to have an intermediary effect,which makes capital flow indirectly affect the score of the exchange rate system.If the capital flows subdivided into short-term capital flows,and long-term capital flows respectively to validate and capital controls,as well as the relationship between exchange rate system,we found that the capital flow,control and exchange rate system has strong correlation,the higher the degree of capital flows,looser regulation has allowed the RMB exchange rate regime tend to choose flexible arrangements.3.The low countries usually corresponds to the opening of the capital is relatively fixed exchange rate system,but as a country’s demand for capital flow caused by the country’s capital account opening,a country’s financial market matures and perfect,the category of financial tool and the extension of scale,the country’s exchange rate regime will be toward flexible,free and floating exchange rate system.