An Empirical Study about the Effects of the Structure of Foreign Exchange Capital Flows on the REER in China

Real effective exchange rate(REER) is an important symbol of a country's international competitiveness. Different kinds of capital flows may have different effects on REER.This paper analyzes the mechanics of such effects,and makes an empirical analysis on REER of RMB.The results show that aggregative capital flows have negative effect on REER of RMB,but foreign direct investments have a positive effect on the REER significantly, while investment income and private remittances lead to REER appreciation.On the basis of these results, the paper suggests that FDI with high-technology should be increased and their imports should be encouraged, which helps to improve our competitiveness and balance the current account.Meanwhile,the supervision systems should be improved to control and manage cross-board capital flows.