| Summary: | China's opening-up policies have led to impressive economic growth, and its financial reforms are critical for further integrating the Chinese market with the world economy. For a considerable time, the PBC (People's Bank of China) has reaffirmed its objectives of increasing the flexibility of the RMB exchange rate and relaxing capital controls. However, the research on these financial reforms is still very limited. Our dissertation aims to examine the macroeconomic effects of relaxing the degree of capital control and changing the exchange rate regime, and provides some policy implications for China's financial reforms. in the future. By developing our theoretical models we identify the role of capital controls on protecting China's fixed exchange rate regime, investigate the different effects of capital controls and changing the exchange rate regime on China's monetary policy, fiscal policy and the nominal wage, and also creatively reveal how China's appreciation pressure and deflation are related to the FDI inflow. Our theoretically comparative analysis and research on the optimal degree of capital control are relevant to the PBC's process of deepening its financial reforms.
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