Global Risk Appetite,US Economic Policy Uncertainties and Cross-Border Capital Flow

Based on the global asset portfolio model,this paper created a panel threshold model using EPFR fund data to empirically test the non-linear spillover effects of US economic policy uncertainties on cross-border capital flow for emerging economies.Our study led to the following findings:(1)When the level of global investor risk tolerance is high,rising US EPU will induce a capital inflow into emerging economies,as manifested in the“portfolio rebalancing effect.”When the level of global investor risk tolerance is below a critical threshold,this gives rise to risk aversion and emerging economies will experience net capital outflow,i.e.the“flight to quality effect”.(2)Equity fund investors have a lower risk tolerance threshold than bond fund investors.(3)According to our heterogeneity analysis,more attention should be paid to monitoring capital flow through actively managed funds,ETF funds,and retail investor funds.The economy should increase financial efficiency and economic resiliency to mitigate capital outflow pressures from the external environment.

Re-measuring International Short-term Capital Flow into China with Varying Methods

This paper.fi＇rst conducts a systematic review of domestic and foreign scholars＇ approaches to predicting short-term capital flows, then employs a combination of both direct and indirect methods to carry out its analysis. Three kinds of indicators, both specific and general, are applied in both methods. Thorough consideration is given to short-term international capital inflow from trade, other current account items, capital account, and errors and omissions, as well as other channels through which short term capital might accrue to a nation＇s balance. Based on a comprehensive comparison of year-on-year data, this paper also estimates monthly data using a simplified, indirect calculation approach. Estimates show that, despite a degree of difference in results between methods, most estimates are highly consistent for a given period. Based on monthly estimates, we conclude that turbulence in international financial markets （i.e., the United States subprime mortgage crisis and the European sovereign debt crisis） has had a major impact on China ＇s short-term capital flow.

Effectiveness and Effects of China’s Capital Controls

Reductions in barriers to global trade have not been accompanied by a widespread looseningof restrictions on international flows of capital, especially in China. This study shows thatChina has some of the most restrictive controls and uses them effectively to bias flows ofcross-border capital heavily in favor of foreign direct investment (FDI) and limit flows ofportfolio and bank assets and liabilities, as well as reducing capital flow volatility. China isnow facing pressure to speed up its opening to all forms of cross border capital. But sinceChina is still struggling to strengthen its domestic financial structure, capital accountliberalization would expose it to considerable risks and potentially high costs.

A Regional Repo Market Initiative for Global Financial Stability

The prevailing global financial system suffers from a shortage of good collateral for increased reliance on nonbank secured lending. Given that the global financial crisis was mainly triggered by the collapse of the collateral pool for dealer-based credit intermediation, this issue needs to be resolved quickly for normalized credit supply. Primarily, increased supply capacity for safe assets that can serve as valid collateral is the key agenda. This would be possible with a better use of USTs that are kept in EME silos and a broader recognition of an emerging market sovereign collateral pool. The inclusion of new collateral into the expanded and invigorated repo system that includes Asia would stabilize global capital flows and improve financial stability. In a related context, a market-driven, risk-mitigating regional repo market initiative would also bring balance to an increasingly market-driven financial ecosystem and mitigate the global shortage of safe assets.

The Impact of the US Interest Rate Hike on Emerging Market Economies and the Belt and Road Initiative

Since the end of 2015,the US Federal Reserve has raised its benchmark interest rate nine times.This has led to capital outflows and asset depreciation in many emerging market economies.The present paper examines the factors that determine the financial volatility of emerging markets in the face of external shocks.By calculating the capital flows of 30 emerging markets from 1990 to 2018 and conducting panel regression,this paper finds that countries with good infrastructure facilities,a sound banking system and high economic growth have significantly lower cross-border financial risks.An implication from the empirical analysis is that emerging countries would benefit greatly by actively taking part in the Belt and Road Initiative.The framework of the Belt and Road Initiative allows emerging countries better access to China s massive consumer market to promote trade and long-term growth.Their quality of infrastructure can be improved through cooperation with China in infrastructure investment.They can also jointly establish a cooperative financial framework to enhance regional financial stability.These strategies will reduce systematic financial risks and counteract the negative impacts of US interest rate hikes.