The Macro-Prudential Regulatory Framework for Cross-Border Capital Flows and the Effect Test

Abstract

Abstract: Through establishing a macro-prudential regulatory framework for cross-border capital flows including the regulatory tools, the operational target and the ultimate goal, this paper makes use of China's data from January 2010 to March 2020 to inspect the effect of regulatory tools on the operational objectives and the ultimate goal. The findings show that the existing macro-prudential regulatory tools have no significant effect on the cross-border capital outflow and inflow under the cur- rent account. The full-caliber cross-border financing management plays a certain role in regulating short-term capital flows. Though the price-type regulatory tools such as bank foreign exchange settlement and sale, foreign exchange risk reserve and domestic deposit reserve ratio of overseas financial institutions are difficult to effectively regulate short-term capital outflows and inflows, they are playing an important role in increasing or decreasing the state's foreign exchange reserves. The price-type regulatory tools and interest margin have a significant impact on the exchange rate. The relative regulatory tools has a very limited impact on the ultimate goal of cross-border capital flow under the current account, the price-type regulatory tools together with exchange rates have a certain impact on the ultimate goal of cross-border capital flow under the capital and financial accounts. This indicates that the existing macro-prudential regulatory tools for cross-border capital flows only have limited regulatory effects, it is necessary to seek and design new regulatory tools to reflect the characteristics of macro-variables and counter-cyclical regulation and control. The daily regulation should give full play to the means of market, but during such harsh times as severe capital flight, it can be taken into consideration to adopt foreign exchange management policies, so as to achieve the balance of international payments.

Key words: cross-border capital flows, macro-prudential regulation, current account, capital and financial account

MIAO Wenlong. The Macro-Prudential Regulatory Framework for Cross-Border Capital Flows and the Effect Test[J]. JOURNAL OF CONTEMPORARY FINANCE AND ECONOMICS, 2021, 0(2): 90-106.

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