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《Financial Economics Research》 2018-02
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The Impact of Reversal of International Capital Flows on the Effectiveness of China's Monetary Policies

Guo Na;Wu Yuyuan;Liu Xiaoxiao;Dagong Credit Management School,Tianjin University of Finance and Economics;  
Based on the current context of economic globalization,international capital flows continue to accelerate and a directional reversal is beginning to emerge. This unpredicted capital flow is likely to break the traditional capital chain and aggravate macroeconomic risks. Therefore,this study constructed a two-country dynamic stochastic general equilibrium( DSGE) model under the condition of a small open economy and analyzed the impact of the reversal of international capital flow on the effectiveness of monetary policies under different currency regulations. The empirical results revealed that with a currency regulation defined based on a fixed exchange rate,the responses of all economic variables towards the reversal of international capital flow was found to be the strongest,and the corresponding impact on the economy appeared to be the greatest. Currency regulations based on the inflation rate of non-tradable goods and the consumer price index,respectively,have their own advantages and disadvantages. Analysis of the economic variables showed greater overall stability in the currency regulation based on the inflation rate of non-tradable goods. The variables of the currency regulation based on the consumer price index were relatively less responsive;however,they were far more volatile. The findings of the study have important policy-based implications for the coordinating of the relationships between monetary policy and capital flow and may help to improve the effectiveness of monetary policy. Based on these results,the Chinese government should accelerate the marketization of interest rates and exchange rates,reinforce the effectiveness of international capital flow monitoring,and strengthen international cooperation and coordination of monetary policies.
【Fund】: 国家社会科学基金青年项目(15CJY080);; 国家自然科学基金面上项目(71771163)
【CateGory Index】: F822.0
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