Abstract: This paper employs a DSGE model to discuss the matching between monetary policy and capital control; then it makes an analysis of the impact of US monetary policy shock on capital control with the TVP-SV-VAR method. The findings show that US monetary policy shock has significantly influenced China’s interest rate, output gap, inflation rate and exchange rate; with the retroposition of the shock time, the impact on China’s interest rate will gradually become weakened, but the shock would bring more volatility on other China’s macro variables, thus China’s welfare will be harmed. China cannot release its capital control rashly, instead, it should make great efforts to lower financial leverage and reduce price bubbles in the financial markets, so as to make irrational asset prices return to rational and make the asset price fluctuate around the real value of the object. Once China’s financial markets return to normal, China can again release its capital control measures gradually, which can improve the welfare of the consumers.

Key words: monetary policy shock; spillover effects; capital control; dual paradox; ternary paradox