The Impact Of Extreme International Capital Flows On Financial Stability

With the deepening of global economic and financial integration and the increasing openness of financial and capital accounts,the world economic and financial system is becoming increasingly closely linked,cross-border capital flows within the financial systems of open economies are more frequent and free.To a certain extent,the free flow of transnational capital optimizes the effective allocation of international resources,injects capital into the capital-receiving countries for the production and operation activities,and promotes the coordinated development of the real economy and the virtual economy of each country.However,due to the continuous innovation of financial instruments and investment strategies and the gradual relaxation of financial supervision in recent years,international capital has taken on the characteristics of high-frequency,complex and large-scale flows,in particular,speculative,profit-seeking and high liquidity of short-term international capital,the financial stability of countries will be rapidly phased impact,or even induce systemic financial risks and financial crisis.Therefore,in the current complex international economic environment,to explore the relationship between extreme international capital flows and financial stability and consider how to prevent and control the risk of extreme international capital flows,maintaining the stability of the financial system is of great importance.Based on the research results of domestic and foreign scholars,this paper combs the international definition,classification and measurement methods of extreme international capital flows,financial stability index synthesis methods and extreme international capital flows on the impact of financial stability of the relevant literature.The entropy method is used to construct a comprehensive financial stability index covering three dimensions of macroeconomic environment,financial market and financial institution.At the same time,it measures the frequency of extreme international capital flow events,analyzes the current situation of financial stability and extreme international capital flows,and verifies the rationality and feasibility of the index.Furthermore,the impact of extreme international capital flows on financial stability in 33 typical sample countries from the first quarter of2006 to the second quarter of 2022 is analyzed by using the fixed effects model.Finally,according to the conclusion of the article,the author puts forward some suggestions on how to prevent extreme international capital flows and maintain financial stability.The main conclusions are as follows:(1)Since 2006,the complexity and volatility of global international capital flows have increased,and the occurrence stages of high-frequency extreme international capital flow events are clustered,and concentrated around the time of financial crisis events.(2)The surge in total capital flows,consisting of direct investment,portfolio investment and other investments under financial accounts,significantly enhanced financial stability,the stop and flight of total capital flows significantly impaired financial stability and the retrenchment of total capital flows had no significant impact on financial stability.(3)The impact of extreme total international capital flows on the financial stability of developed economies and emerging and developing economies is significantly heterogeneous.Extreme total international capital flight has a significant negative effect on the financial stability of both groups of economies,and the impact is higher in emerging and developing economies.The surge and stop in aggregate capital flows have had a significant impact only on emerging and developing economies.(4)Under the three subdivided channels of financial accounts(direct investment,portfolio investment and other investment),the impact of extreme international capital flows on financial stability also has significant heterogeneity,among which the extreme flow of portfolio investment capital has the largest impact.