Policy Uncertainty,Cross-border Capital Flows And Financial Cycle Volatility

In recent years,the financial crisis in the United States and the debt crisis in Europe have broken out one after another,the trade friction between China and the United States has been escalating,and countries have introduced unconventional economic policies in response to the slowdown of global economic growth,which has led to the continuous rise of global policy uncertainty and the increasingly complex international political and economic environment.With the increase of external uncertainties facing China,macroeconomic downward pressure and financial market risk premium also rise.Driven by risk aversion,international investors tend to readjust the financial asset allocation of cross-border investment,withdraw the short-term speculative capital previously invested in the financial market,and intensify the risk of cross-border capital flow.The short-term market volatility driven by investors' risk aversion may mask the long-term trend supported by economic fundamentals,resulting in short-term speculative tendency of cross-border capital flows.When the market is impacted by the external uncertainty,the large-scale flight of short-term speculative capital will impact the financial cycle and the stable operation of the macro-economy,and force the monetary policy to respond to the financial stability under the guidance of the "Jackson Hole consensus",so as to achieve the "double stability" of the financial and the real economy.This paper discusses the cross-border capital shock and financial cycle regulation under the background of global policy uncertainty,which is helpful for the policy authorities of all countries to maintain the continuity of policy regulation and the stability of policy orientation in the macro-control,so as to avoid the external uncertainty factors aggravating the risk of cross-border capital flow and impacting the stable operation of financial cycle.This paper mainly discusses the transmission chain of "policy uncertainty?cross-border capital flow ? financial cycle fluctuation ? monetary policy regulation".Firstly,policy uncertainty is introduced into the market supply and demand model and the spillover effect of policy uncertainty on cross-border capital flows is derived based on the utility theory of cross-border capital flows.This paper uses PVAR model and TVP-VAR model to explore the spillover direction and strength of policy uncertainty on cross-border capital flows.Secondly,considering that credit and house price are the benchmark indexes to describe the financial cycle,this paper combs the transmission mechanism of cross-border capital flow to the financial cycle fluctuation based on the total credit channel and the real estate price channel,and uses panel and time-varying impulse response and variance decomposition to identify and judge the impact direction and strength of capital flow on the financial cycle.Finally,the paper constructs the extended Taylor rule model considering the financial cycle fluctuation,and discusses the internal mechanism of the macroeconomic stability effect of monetary policy under the two regulation rules—concerning the financial cycle fluctuation or not—through theoretical deduction;based on the global and Chinese perspectives,it discusses the regional heterogeneity and time-varying adjustment characteristics of the direction and strength of monetary policy regulation of financial cycle.Based on this,the main conclusions are as follows:Firstly,compared with developed countries,global policy uncertainty has a stronger negative spillover effect on cross-border capital flows of emerging market countries.With the gradual opening of China's capital account,the scale of cross-border capital flows continues to expand and the inflow and outflow frequently alternate.In addition,in recent years,the outbreak and upgrading of trade frictions between China and the United States have enhanced the negative impact of policy uncertainty on cross-border capital flows.Secondly,cross-border capital inflows have led to a downward financial cycle in emerging market countries and an upward financial cycle in developed countries.With the increasing attention of China's monetary policy to cross-border capital flows and the close balance and stability of China's economic growth and inflation,the impact of cross-border capital flows on the financial cycle has been weakened.Thirdly,the monetary policies of price and quantity in emerging market countries have a stronger regulatory effect on the financial cycle than those in developed countries.With the continuous improvement of China's financialization,the funds released by expansionary monetary policy only circulate in the financial field.In addition,with the gradual change of monetary policy from quantity type to price type,the regulatory effect of quantity type(price type)monetary policy on financial cycle operation is weakened(enhanced).The innovations of this paper are as follows:Firstly,the research procedure of this paper follows the logic paradigm from external to internal,from general to special,and improves the practice of China's policy regulation on the basis of exploring and drawing lessons from the global economic laws and experience,thus forming the"spillover of policy uncertainty on cross-border capital flows ? impact of cross-border capital flows on financial cycle fluctuations?effective regulation of monetary policy on financial cycle operation" research idea that link up and step by step.Secondly,policy uncertainty is introduced into the market supply and demand model and based on the utility theory of cross-border capital flows,the spillover effect of policy uncertainty on cross-border capital flows is derived;the transmission mechanism of cross-border capital flows on financial cycle volatility is combed based on the total credit channel and real estate price channel respectively;constructs the extended Taylor rule model considering the financial cycle fluctuation,and discusses the internal mechanism of the macroeconomic stability effect of monetary policy.Thirdly,based on the global and Chinese perspectives,the panel and time-varying impulse response and variance decomposition of PVAR model and TVP-VAR model are used to identify and judge the regional heterogeneity and time-varying adjustment characteristics of the transmission direction and strength of the chain "policy uncertainty? cross-border capital flow ? financial cycle volatility ? monetary policy regulation",from the two dimensions of space and time,this paper discusses whether and how the spillover,impact or regulatory effect varies from place to place and from time to time.