Research On The Construction Of Early-warning Index System Of Cross-border Capital Flows In China

Cross-border capital flows have a significant impact on the macro-economy by disrupting market sentiment and affecting asset prices.Since the Federal Reserve entered a new round of interest rate hike in 2015,the two-way fluctuation of cross-border capital in China is more and more frequent,showing obvious pro-cyclicality.China are facing the dual pressure of outflow trend and the decline of reserve assets.Therefore,under the background that the two-way fluctuation of cross-border capital has become the norm,the research on the construction of early-warning index system of cross-border capital flows in China has important theoretical and practical significance for maintaining economic and financial stability.This paper takes the domestic and foreign literature review and theoretical review as the logical starting point,systematically combs the currency crisis theory and the risk early-warning models.Through the comparative analysis of various early-warning models,this paper finally determines the principal component analysis and MS-VAR model as the basic method to construct the early-warning index system.The empirical analysis is as follows:Firstly,based on the monthly fluctuations of China's cross-border capital from 2008 to 2017,this paper identifies risk points,and excavates four categories of 23 alternative indicators.By using Granger causality test and the principal component analysis,this paper screens out the leading indicators and synchronization indicators,and synthesizes the early-warning index.Secondly,the internal and external validity test of the early-warning index is carried out.The trend of the early-warning index and the cross-border capital flow are compared and analyzed.The GARCH model is used to test the volatility of the 2018 early-warning index to test the effect of the index.Finally,based on the MS-VAR model,the risk state of the index is divided into "low,medium and high" three zones,so as to identify the risk period of cross-border capital flow,and obtain the transition probability and correlation coefficient between different risk states,and make a quantitative analysis of the risk state of cross-border capital flow in China.The results show that:(1)Macroeconomic performance indicators account for the largest proportion of the early-warning index and the early-warning capability is relatively strong,indicating that China's cross-border capital flows have significant pro-cyclicality.(2)Under the"high risk" regional system,the early-warning index has the highest smoothing probability,the largest number of samples and the longest average duration,indicating that China's cross-border capital flows are in a medium-high risk state during 2008-2017.Combined with the pro-cyclicality and the early-warning results of cross-border capital flows,this paper puts forward some policy recommendations such as establishing a counter-cyclical cross-border capital flow management mechanism and a multi-dimensional indicator system.