Short-term International Capital Flows Research Articles

Analysis on the Relationship Between China-US Exchange Rate Fluctuations and Short-Term Cross-Border Capital Flows

The exchange rate, as a key indicator of a country's economic health and policy direction, has profound implications for international trade and cross-border investments. This study explores the relationship between the RMB exchange rate and short-term international capital flows (SICF) and employs various economic analysis methods to delve into this issue. The main findings of the study include, firstly, there exists a cointegration relationship between the RMB exchange rate and short-term international capital flows, indicating a long-term equilibrium relationship between them rather than just short-term fluctuations; secondly, Granger causality test results suggest a bi-directional causal relationship between these two variables, with changes in the RMB exchange rate being used to predict changes in international capital flows, and vice versa. Additionally, the estimated results of the VAR model established reveal linear relationships among five key variables and exhibit a high degree of fit. Finally, variance decomposition analysis reveals that the RMB exchange rate gradually becomes an important factor in the volatility of short-term capital flows, while the volatility of short-term capital flows itself gradually decreases.

The Impact of Short-term and Long-term International Capital Flows on Economic Growth

With the rapid growth of foreign direct investment (FDI) in the world, FDI plays an increasingly important role than the trade in the process of economic globalization and integration. However, the effect of international capital on economic growth is ambiguous. Moderate foreign capital inflow can solve the problem of insufficient funds in the real economy and promote the development of the virtual economy as well. Empirical analyses have shown that the impact of long-term international capital flows on economic growth is more favorable and long-lasting, but the rapid pace of short-term international capital flows has an unstable impact on a country’s economy. This study explores the impact of China’s long-term and short-term international capital flows on GDP since 1971, and the results show that both long-term and short-term international capital flows could benefit economic growth before 2011. Although short-term international capital flew out rapidly after 2012, it did not reduce the steady growth trend of China’s economy.

Trade Conflicts and China's Macroeconomic Fluctuations ---An Empirical Analysis Based on Vector Autoregression Model

This paper uses the data from November 2016 to June 2018 to construct a VAR model to empirically analyze the impact of trade wars on the Chinese economy since the trade friction between China and the United States. The empirical results show that the trade conflict between China and the United States will have short-term effects on financial institution loans, net export fluctuations, capital markets, short-term international capital flows, and the RMB exchange rate. After the impact of the trade war, the Chinese economy will have a spontaneous adjustment function, which will cause a certain positive and negative change in economic changes. But over time, the impact of Sino-US trade conflicts on financial institution loans, net export volatility, asset prices, short-term international capital flows, and the RMB exchange rate has gradually weakened until the gradual convergence to the zero axis and the effect disappears.

Analysis of Chinese Short-Term International Capital Flow Capital Motivation

Based on the existing basis, this paper analyzes the short-term international working capital. In addition to considering the interest rate, exchange rate and asset price factors, it also incorporates the fluctuation risk factors of GDP for comprehensive consideration. This article uses the quarterly data of 2000Q1-2016Q3 to build a VAR model of quarterly data. The results show that Chinese short-term international capital flows are explained by their own changes to a large extent; among the four factors, exchange rate and asset price factors have the greatest impact, and arbitrage and DGP risk fluctuations have the weakest impact, indicating that investors are at the national level. Economic fluctuations and spreads are not sensitive, and the purpose of short-term international capital is to obtain the benefits of assets and exchange rates.

Are there significant linkages between two series of housing prices, money supply and short-term international capital? – Evidence from China

This paper studies the relationship between two series of the money supply (M2), short-term international capital flows and housing prices by employing a continuous wavelet method. This method can enable us to examine the relation in both time and frequency domains in detail. We use data from China for empirical analysis. Although the relations are not stable, several main findings are observed. First, M2 affects short-term international capital flows mainly in the long term. The upward momentum of M2 has led foreign investors to be optimistic about China's economy, thus attracting inflows of capital. However, capital flows have little effect on the M2 due to the effectiveness of sterilization. Second, housing prices and M2 move synchronously before 2008. After 2008, housing prices are caused by M2 due to the excessive currency from the government's monetary and fiscal policies. Furthermore, M2 affects housing prices significantly in the long term. Additionally, after eliminating the influence of the M2, we find that a strong relationship exists between short-term international capital flows and housing prices in the short term, which means that this influence is mainly through a direct effect. These findings provide implications for the government to formulate monetary policy and regulate the housing market and capital flows.

RE-MEASUREMENT OF SHORT-TERM INTERNATIONAL CAPITAL FLOWS AND ITS APPLICATION: EVIDENCE FROM CHINA

In this paper, we use the improved direct method and improved residual method to re-measure the annual scale and to measure the quarterly scale of the short-term international capital flows based on the Chinese Balance of Payment table. At the same time, we use the residual method to estimate the monthly scale of the Chinese short-term international capital flows as well. Then we explain and test these calculated results. Next we apply the results to the lead–lag analysis of macro-economy. To judge whether the short-term international capital flow is a leading indicator, we apply the Kullback–Leibler information method and cross-correlation analysis method to analyze the lead–lag relationship between the short-term international capital flows and macro-economy by selecting some representative macroeconomic indicators as a reference. Our empirical analysis shows that in China, the short-term international capital flow is a leading indicator to macro-economy and a coincident indicator to Purchasing Managers’ Index. In the end, we give some conclusions and policy proposals.

Research on the Impacts of Hidden Short-term International Capital Flows on China’s Economy

Hidden short-term international capital flows have complex and diverse impact channels which are difficult to supervise. This paper uses statistic software Eviews 8.0 to make Johansen cointegration test, VECM model test, Granger causality test and impulse responses analysis based on the collection of quarterly data from 2004 to 2014. The results show that hidden short-term international capital flows have huge and unstable impact upon China’s economy, therefore, we put forward policy suggestions based on the conclusion of empirical results.

Modeling dynamics of short-term international capital flows in China: A Markov regime switching approach

In this paper, we analyze the dynamics of short-term international capital flows in China using time-varying transition probability Markov switching models. We provide empirical evidence that exchange rates may prove to be useful information variables for detecting the states of inflow or outflow. Moreover, the short-term international capital of “currency arbitrage” has high speculations. In addition, the results show that inflows and outflows last about 25 months and 4 months, respectively, and after 2007, inflows dominate the dynamics of short-term international capital.

Impact of Short-Term International Capital Flows on Interactivity of Stock Market and Real Estate Market in Chinese First-Tier Cities: A Viewpoint of “Co-Selling Effect”

This paper offers a new prospect of interactivity of stock market and real estate market, it is found that not only the fundamental factors have impact on this, but the non-fundamental factors like short-term international capital flows play an important role in it. This paper tests the impact from short-term international capital flows on interactivity of stock market and real estate market by using dummy variables describing market conditions based on the “Co-Selling Effect” theory, the results show that the “Co-Selling Effect” does exist when market condition is bad, but this phenomenon could not be observed when market condition is good. This point is consistent with the classic theory.

A Study on the Influence Factors of Short-Term International Capital Flows—The Evidence from Emerging Market

This paper conducts an empirical analysis based on the balanced panel data of 18 emerging market economies between Q1, 2005 and Q3, 2017 to identify the influence factors of short-term international capital and discuss their time-varying characteristics. The system GMM model shows that short-term international capital is negatively correlated with the VIX (Volatility Index) and US real GDP growth rate, and is positively correlated with the appreciation of emerging markets’ currencies. The TVP-VAR model shows that short-term international capital has positive impulse response to its own changes, appearing “herd effect”, and has the largest impulse response to US GDP growth, VIX, US dollar appreciation and itself within two quarters, which are all consistent with the variability of itself. What’s more, the VIX exhibits obvious time-varying characteristics. The financial crisis expands the influence of VIX and the US GDP growth rate, and the first round of QE amplifies the influence of VIX.

Measurement and multifractal properties of short-term international capital flows in China

Abstract The paper measures monthly short-term international capital flows during Jan. 2000 to Jul. 2015 in China. It is shown that, since mid-2014 the amount of short-term international capital outflows in China has increased rapidly, reaching the historical peak at 65.8 billion dollars per month in July, 2015. By conducting multifractal analysis with MF-DFA method, it is proved that China’s short-term international capital flows exhibit significant non-linear multifractal properties. Further study indicates that the long-range correlations and fat-tailed distribution both contribute to the multifractal properties, while the former is the main reason. The non-linearity of capital flows calls for non-linear tools instead of conventional linear tools to further study features of China’s short-term international capital flows or to build early warning system of international capital flow risks. The paper measures monthly short-term international capital flows during Jan. 2000 to Jul. 2015 in China. It is shown that, since mid-2014 the amount of short-term international capital outflows in China has increased rapidly, reaching the historical peak at 65.8 billion dollars per month in July, 2015. By conducting multifractal analysis with MF-DFA method, it is proved that China’s short-term international capital flows exhibit significant non-linear multifractal properties. Further study indicates that the long-range correlations and fat-tailed distribution both contribute to the multifractal properties, while the former is the main reason. The non-linearity of capital flows calls for non-linear tools instead of conventional linear tools to further study features of China’s short-term international capital flows or to build early warning system of international capital flow risks.

The Transmission of U.S. Monetary Policy Shocks to the China’s Output and Inflation: An Empirical Analysis

We employ the SVAR model to examine the impact of U.S. monetary policy shock on the Chinese real output and inflation. Our main result shows that the effect of transmission of short-term international capital flows is stronger than the balance of trade and the world commodity prices index. The exchange rate of RMB has the weakest transmission effect. Expansionary monetary policy shocks of the United States will increase real output and consumer price index of China and the United States; but the U.S. real output growth is higher than that of China; China’s consumer price index rise higher than that of United States. Based on this, China should gradually adjust economic growth model, increased the per capita disposable income and strengthen regulate the speculative short-term international capital flows. Key words : Monetary policy shock; Transmission channel; SVAR model; Impulse response

Eurobanking, open market operations and the monetary base

This paper examines the non-stochastic structure determining, in the short run, the monetary base of a small open economy under a regime of fixed exchange rates with less than perfect substitution between currency denomination of assets but unrestricted domestic financial intermediation in ‘Eurocurrency’ assets. It demonstrates that such intermediation reinforces the impact of open market operations on the monetary base by alleviating the connection between short-term international capital flows and covered interest rate arbitrage. Euroasset financial intermediation absorbs some of the financial and monetary shocks from shifting preferences for the currency denomination of assets.

Short-Term International Capital Flows and the Effectiveness of Monetary Policy in an Open Economy: The German Case

Kurzfristige internationale Kapitalbewegungen und die Wirksamkeit der Geldpolitik in einer offenen Wirtschaft - aufgezeigt am Fall Bundesrepublik Deutschland Dieser Beitrag entwickelt ein Modell, um die Fähigkeiten einer Währungsbehörde in einer offenen Wirtschaft zu bestimmen, diskretionären Einfluß auf die inländische monetäre Basis bei einem System fester Wechselkurse auszuüben. Eine vereinfachte Gleichung wurde von dem Modell abgeleitet und dient zur direkten Schätzung der Auswirkungen geldpolitischer Eingriffe auf Kapitalbewegungen mittels Veränderungen in der inländischen Mindestreserve. Dem Modell liegt die Annahme zugrunde, daß in einer Periode kurzfristigen Kapitalmarkgleichgewichts eine Veränderung im inländischen Kreditnachfrageüberschuß, die durch eine Veränderung der Bankenliquidität verursacht wird, sich in Kapitalströme niederschlägt, da Inländer zwischen ausländischen und inländischen Finanzaktiva und -passiva in ihrem Wertpapierbestand substituieren. Diese Veränderungen in den heimischen Wertpapierbeständen treten wahrscheinlich vor den Veränderungen zwischen Rentenwerten, Geldbeständen und Gütern auf. Das Modell wurde für die deutsche Wirtschaft für den Zeitraum von November 1962 bis Mai 1971 angewandt. Danach übernahm die Bundesrepublik Deutschland das System flexibler Wechselkurse. Monatliche Daten wurden bei der empirischen Berechnung des Modells zugrunde gelegt. Da ein wichtiges Instrument deutscher Geldpolitik - nämlich die Veränderung der Mindestreserveanforderungen institutionell nur am 1. eines jeden Monats zum Einsatz kommt, kann der Gebrauch monatlicher Daten das Problem des Simultangleichungs- Bias zwischen den geldpolitischen Veränderungen in der Geldbasis und den daraus resultierenden kurzfristigen Kapitalströmen lösen helfen. Monatliche Daten sind auch besser als Quartalsdaten für den Beweis der Wirkungsdichtung zwischen Kapitalströmen und geldpolitischen Veränderungen der Geldbasis geeignet. Die empirischen Ergebnisse dieses Beitrages zeigen, daß Reaktionen der kurzfristigen internationalen Kapitalbewegungen auf geldpolitische Veränderungen in der Kapitalbasis größenteils innerhalb eines Monats beendet sind, und daß solche Kapitalströme reagieren, um zumindest 57 bis 59 Prozent der geldpolitischen Veränderungen der Geldbasis auszugleichen. Da der Ausgleich nicht vollständig ist, werden die deutschen Währungsbehörden durch die kurzfristigen internationalen Geldströme nicht daran gehindert, eine unabhängige Geldpolitik in einem System fester Wechselkurse zu verfolgen, obgleich es möglich ist, daß gelegentliche Neubewertungen dann vorgenommen werden müssen, wenn diese Unabhängigkeit nur aufrecht erhalten werden kann, wenn es weitverbreitete Erwartungen einer Paritätsänderung gibt.