Research On The Impact Of External Economic Policy Uncertainty On Economic Fluctuation

In recent years,the financial crisis,European debt crisis,Brexit,trade frictions,anti globalization trend of thought,COVID-19 epidemic and other black swan events have broken out one after another,leading to increased global uncertainty.In this situation,governments of all countries have successively issued corresponding economic policies to deal with the impact of external uncertainty.While avoiding severe damage to the domestic economy,they have also added new uncertainties to the international economic and financial environment,leading to a rapid rise in the external economic policies uncertainty faced by all countries,followed by huge changes in cross-border capital flows,which has brought great challenges to the stability of domestic economies of all countries.As a bridge connecting domestic and foreign economies,cross-border capital flows are more sensitive to changes in short-term variables such as external economic policy uncertainty,and respond quickly,especially affected by expected related factors.When the external economic policies uncertainty increases,investors’ expectations of the future economic development trend will change accordingly,so that their investment structure will adjust with expectations,and eventually lead to cross-border capital flows.That is,international investors’ expectations of future economic situation changes often dominate cross-border capital flows in the short term.Therefore,cross-border capital flows can be affected by the uncertainty of external economic policies more quickly than economic fundamentals,thus impacting the domestic economy.Therefore,in the context of the increasing external economic policies uncertainty,this paper studies the impact of external economic policy uncertainty on economic fluctuations from the perspective of cross-border capital flows with different maturities,and specifically studies the role of long-term and short-term cross-border capital flows in the process of external economic policy uncertainty affecting economic fluctuations,which is helpful for relevant departments to take corresponding measures to deal with the impact of external economic policy uncertainty.On the one hand,this study helps to avoid abnormal cross-border capital flows,and strengthen the domestic economy’s ability to withstand external shocks,thus ensuring domestic economic stability.This paper focuses on the impact of external economic policy uncertainty on economic fluctuations,analyzes the role of cross-border capital flows of different periods in the process of external economic policy uncertainty affecting economic fluctuations based on the clear relationship between the two,and then discusses the path of suppressing economic fluctuations from both long-term and short-term cross-border capital flows.First,determine the measurement methods of external economic policy uncertainty,cross-border capital flows with different periods and economic fluctuations,and quantitatively analyze the situation and linkage of the three variables,and then sort out the theoretical logic of external economic policy uncertainty affecting economic fluctuations,and the intermediary impact of cross-border capital flows with different periods in the process of external economic policy uncertainty affecting economic fluctuations.Then,we construct panel regression model and threshold effect model to empirically test the direction,intensity and threshold effect of external economic policy uncertainty on economic volatility.Thirdly,we construct a three-step intermediary effect model to empirically test the intermediary effect of cross-border capital flows with different maturities,and further analyze the heterogeneity of the intermediary effect.In order to further explain the causes of heterogeneity and weaken the indirect effect of external economic policy uncertainty on economic fluctuations through cross-border capital flow channels,this paper constructs a mediation effect model to empirically analyze the specific path to suppress economic fluctuations.Finally,it summarizes the full text and puts forward targeted policy recommendations.The main conclusions of this paper are as follows:First,the uncertainty of external economic policies has a significant inhibition effect on economic fluctuations,and there is a nonlinear feature with financial development as a single threshold.That is,under different financial development dimensions,the inhibition effect of external economic policy uncertainty on economic fluctuations has a nonlinear feature of "marginal effect" decreasing or even structural changes.Both long-term cross-border capital flows and short-term cross-border capital flows are important channels for external economic policy uncertainty to affect economic fluctuations.On the one hand,when a country faces the uncertainty of external economic policies increasing,investors transfer assets to the country.Due to the existence of "herd effect",a large number of short-term cross-border capital flows into the country,causing asset prices to rise,exchange rate risk to rise and domestic liquidity to rise,impacting financial stability and eventually leading to economic fluctuations.On the other hand,when a country faces the uncertainty of external economic policies increasing,the decisionmakers and direct investors of transnational enterprises will reduce the investment of other countries,and increase the investment of the country,which will lead to an increase in the longterm cross-border capital inflow of the country,and thus the overall investment and output of the country will increase,resulting in the actual output higher than the potential output,causing domestic economic fluctuations.Third,improving the financial environment,government efficiency and technology absorption capacity can weaken the adverse impact of external economic policy uncertainty on economic fluctuations through cross-border capital flows of different periods.On the one hand,the appropriate financial environment can broaden financing channels,reduce financial frictions and allocate resources reasonably and effectively.However,excessive financial scale will worsen the adverse impact of short-term cross-border capital flows on economic fluctuations;Properly increasing the proportion of direct financing can weaken the role of external economic policy uncertainty in promoting short-term cross-border capital flows,thereby weakening the role of short-term cross-border capital flows in aggravating domestic economic fluctuations;Blindly improving financial efficiency will not only enhance the role of external economic policy uncertainty in promoting short-term cross-border capital flows,but also worsen the relationship between short-term cross-border capital flows and economic fluctuations.On the other hand,higher government efficiency can provide a good business environment and investment environment for enterprises and investors,which not only weakens the role of the increased uncertainty of external economic policies in promoting long-term cross-border capital inflows,but also helps local enterprises effectively transform long-term capital inflows,thereby weakening the adverse impact of long-term cross-border flows on domestic economic fluctuations.The improvement of technology absorption capacity can promote the effective absorption and transformation of long-term cross-border capital and advanced technology,thereby weakening the aggravating effect of long-term cross-border capital flows on domestic economic fluctuations.Distinguishing from the existing literature,the innovation of this paper lies in:First,to clarify the impact of external economic policy uncertainty on economic fluctuations,and build a threshold effect model to analyze the specific characteristics of this impact.Second,put the uncertainty of external economic policies,cross-border capital flows with different maturities and economic fluctuations in the same framework,and analyze the role of cross-border capital flows with different maturities in the uncertainty of external economic policies from both theoretical and empirical aspects.Thirdly,by introducing the concepts of "motivation effect" and "regulation effect",this paper constructs an analytical framework to regulate the indirect effects of external economic policy uncertainty on economic fluctuations through cross-border capital flows for cross-border capital flows of different periods,and analyzes the path of stabilizing economic fluctuations from the perspective of cross-border capital flows of different periods from both theoretical and empirical aspects.