China's Participation In International Macroprudential Policy Coordination:Necessity And Benefits Of Coordination

Financial globalization has increased the possibility of international spillover of external shocks.Studies show that the necessity of international macroprudential policy coordination comes from the externality of cross-border financial sectors and it is related to the interconnection of financial institutions and financial markets.In addition,the cross-border spillover effect of macroprudential policies themselves and the interplay between national policies increase the need for international macroprudential policy coordination.International macroprudential policy coordination can help recipient countries from global financial shocks,and relieve systemic financial risk of the international capital flows and cross-border contagion of financial risks.Financial Stability Board(FSB),International Monetary Fund(IMF)and other global organizations called for the authorities to strengthen international coordination of macroprudential policy.However,the current research on international macroprudential policy coordination is still in its infancy,and there is no consensus on the benefits of coordination.In addition,the existing practice of international macroprudential policy coordination is less.With the improvement of China's economic status and the further deepening of financial opening,China's financial stability is vulnerable to the influence of foreign financial shocks.Meanwhile,domestic financial shocks will spill over to foreign countries.Then,will the spillover effect of macroprudential policies themselves and cross-border financial spillover effect affect China's financial stability,thus increasing the necessity of macroprudential policy coordination between China and foreign countries?The study of China's participation in international macroprudential policy coordination can not only enrich the theories of macroprudential regulation and broaden the focus of international economic policy coordination on the international coordination of monetary policy,but also provide a useful reference for China to improve the supervision framework of macroprudential policy and maintain domestic financial stabilityIn view of this,this paper studies the necessity and benefits of policy coordination from the perspective of China's participation in international macroprudential policy coordination.This paper focuses on solving two questions:First,what are the sources of necessity for China to participate in international macroprudential policy coordination?Second,how much will China benefit from and how will China participate in international macroprudential policy coordination?Based on China's national conditions and considering China's financial links with the outside world after the full opening up,the paper analyzed the necessity for China to participate in international macroprudential policy coordination from the local spillover effect of macroprudential policy,the international spillover effect of macroprudential policy and cross-border contagion of financial risks.Then we calculated the benefits for China to participate in international macroprudential policy coordination under various circumstances through numerical simulation,and proposed the specific plan for China to participate in macroprudential policy coordination accordingly.Chapters 1 is the introduction,mainly introducing the research background,research content,research significance and innovation points of this paper.Chapters 2 is the literature review from international monetary policy coordination,cross-border financial spillover,international spillover effect of macroprudential policy and the benefits of macroprudential policy coordination.The literature review leads to the main research content,namely the necessity and benefits for China to participate in international macroprudential policy coordination.Chapters 3,4 and 5 analyze the necessity for China to participate in international macroprudential policy coordination from three aspects:The first is to analyze the local spillover effect of China's macroprudential policy on cross-border credit and examine the impact of China's participation in macroprudential policy coordination on mitigating the negative impact of local spillover effect.Construct a local equilibrium model to analyze the specific mechanism of local spillover effect,and empirically test the local spillover effect of China's macroprudential policy by combining the actual data of cross-border credit and macroprudential policy.Both theoretical and empirical results show that the implementation of tight macroprudential policy in China will aggravate cross-border credit fluctuations into China,and cross-border credit fluctuations from developed countries and countries closely associated with China's finance will be greater,which will affect China's financial stability.At this point,macroprudential policy coordination between China and foreign countries can help mitigate the negative impact of local spillover effectSecond,Analyze the international spillover effect of foreign macroprudential policy on cross-border credit and the impact of international spillover effect on the effectiveness of China's macroprudential policy,and examine the effect of China's participation in macroprudential policy coordination on reducing the negative impact of international spillover effect.Firstly,analyze the existence and specific characteristics of international spillover effect of foreign macroprudential policy theoretically and empirically.Then from the perspective of China's foreign financial links and trade links,we empirically test the spillover effect of foreign macroprudential policy on China's credit and housing price,and analyze the weakening effect of such spillover effect on the effectiveness of China's macroprudential policy.The results show that the tight macroprudential policy of foreign countries(especially those with close financial ties)will aggravate the cross-border credit fluctuations into China and have a positive effect on China's housing price and credit,and thus weaken the effectiveness of China's macroprudential policy.At this time,China's participation in international macroprudential policy coordination can reduce the negative impact of international spillover effect on China's financial stability and domestic policy effectivenessThe third is to demonstrate the impact of China's participation in macroprudential policy coordination on reducing cross-border contagion of financial risks.Firstly,construct a "directed and weighted" financial network between China and the economies with which it is closely linked financially based on the network topology method of generalized variance decomposition,and measure the intensity of cross-border financial risks contagion.Then,based on the measurement results,we empirically test whether concerted macroprudential policy can reduce cross-border contagion of financial risks.The empirical results show that the coordination of macroprudential policy between China and foreign countries does help to reduce the cross-border contagion of financial risks between the two countries,thus confirming the necessity for China to participate in macroprudential policy coordination.Based on the necessity of international macroprudential policy coordination for China,Chapter 6 constructs a general equilibrium model of macroprudential policy coordination between China and abroad to calculate the benefits of macroprudential policy coordination and analyze the factors that influence the coordination benefits by numerical simulation,and then puts forward specific plan for China to participate in policy coordination.The numerical simulation is mainly divided into two scenarios:cross-border spillover of macroprudential policy and cross-border contagion of financial risks.In the first case,there is no need for policy coordination when the two countries face reverse demand shocks.But under the background of strong and synchronization prosperity,the two countries' policy coordination mechanism can help to reduce the negative externalities of cross-border spillover of macroprudential policy and make the overall benefits of financial stability in two countries.The coordination benefits increase with the decrease of China's policy operating space and the increase of cross-border financial spillover degree.In the second case,when the financial risks between the two countries are close,the policy coordination can not only control excess global investment and credit and be conducive to financial stability,but also can improve the yields of investment and welfares of resident in the two countries.The coordination benefits increase with the increase of global financial risk and developed degree of international financial market.However,policy coordination between countries with low financial risk and those with high financial risk will cause greater policy losses in countries with low financial risk and affect domestic financial stability.Based on the calculation results of coordination benefits under various circumstances,this paper puts forward the plan for China to participate in international macroprudential policy coordination,and makes clear the specific coordination timing,coordination objects and coordination methods.The paper systematically studied the problems about China's participation in international macroprudential policy coordination,and analyzed in accordance with the necessity,the benefits and the plan for China to participate in international macroprudential policy coordination,which provides a decision-making basis for China to participate in international macroprudential policy coordination in practice.In addition,this paper confirmed that the foreign macroprudential policy itself could be shock source to produce cross-border' spillover effect,influence China's financial stability and weaken the effectiveness of China's macroprudential policy.It provides certain enlightenment for China to enhance monitoring and guard against the hazard of foreign macroprudential policy to Chinese financial stability.Finally,the study showed that the international coordination of macroprudential policy and the macroprudential supervision of cross-border capital flows could be included in supervision framework of macroprudential policy,which provides a useful reference for China to improve the supervision framework of macroprudential policy.