The Study On The Impact Of The Global Financial Cycle On Cross-Border Capital Flows

With the development of economic globalisation,correlations and linkages between countries around the globe have increased.As global financial crises also continue to occur and gradually manifest themselves in the form of global spillovers,a"global financial cycle"has emerged.At the same time,global financial crises are usually preceded by rapid capital inflows and outflows within a short period of time,a phenomenon that can have a negative impact on the stability of the financial system.Therefore,the study of the global financial cycle and cross-border capital flows in this paper will help countries or economies around the world to achieve the goal of preventing financial risks and maintaining financial market stability on the basis of an accurate understanding of the characteristics and trends of the global financial cycle.Based on the above research objectives,this paper uses principal component analysis and selects 8 financial variables to measure the proxies of the global financial cycle.Subsequently,this paper analyses the characteristics and current situation of the global financial cycle and cross-border capital flows,and finds that the global financial cycle has the following characteristics:financial cycles are more volatile and longer than economic cycles;global financial cycles go hand in hand with economic turbulence;and global financial cycles can exacerbate resource mismatches.Global cross-border capital flows are characterised by an increase in the scale of flows and investment liberalisation;increased participation of emerging economies,but the dominance of developed economies;and an accelerated trend towards securitisation of international capital and high rates of cross-border capital flows.Building on the existing theoretical foundation,this paper examines the relationship between global financial cycles and cross-border capital flows by constructing a dynamic panel system GMM model using quarterly data for 41 countries over the period1999-2021,with heterogeneity analysis for different modes of cross-border capital flows,different exchange rate regimes and different economies.The main findings of this paper’s empirical study are as follows:（1）the global financial cycle variables GFC₁ and GFC₂ have a significant negative impact on cross-border capital flows,but there are differences in the extent to which the global financial cycle affects cross-border capital inflows and outflows;（2）The global financial cycle has had the biggest significant impact on cross-border capital flows in terms of direct investment,and the least impact on cross-border capital flows of other investment modes.The global financial cycle has a greater impact on countries with fixed exchange rate regimes and a smaller impact on countries with floating exchange rate regimes;the global financial cycle has a significant negative impact on cross-border capital flows to developed economies,while the effect on emerging and developing economies is not significant.Finally,the policy recommendations derived from the empirical evidence are:（1）Countries should provide timely and effective early warning and monitoring of the global financial cycle,accurately capture the movements of the global financial cycle,and prepare for possible financial risks;（2）Countries can gradually establish and improve the monitoring,early warning and response mechanisms for cross-border capital flows,and for emerging and developing economies,they should also pay more attention to the structural problems of capital inflows;（3）Countries can implement a more flexible exchange rate regime,and continuously improve the resilience of their economic development and enhance the comprehensive use of macro-prudential policies,so as to reduce the pro-cyclicality of their financial system and cross-border capital flows.