Prediction And Early Warning Of Short-term Cross-border Capital Flow Trend In China

With the continuous advancement of China’s financial opening process in recent years,some achievements have been made in capital account opening,financial industry opening,exchange rate marketization reform and RMB internationalization.Although financial openness promotes China’s economic development and financial innovation,it also has great risks.Short-term cross-border capital has the characteristics of liquidity,speculation and destructiveness,which will bring certain impact on China’s financial stability and even lead to systemic financial risks.Therefore,it is of great significance to study the early warning indicators of short-term cross-border capital flow risk in the context of the continuous progress of opening up.Based on the research and basic theory of scholars at home and abroad,this paper introduces the development process of China’s opening up and the current situation of short-term cross-border capital flows,and analyses the impact and potential risks of short-term cross-border capital flows on financial stability through case studies.According to the principles of comprehensiveness,scientificity and importance,this paper combines the current situation of China’s economic development,and selects domestic macro-economy and external finance.There are 23 indicators in the four aspects of status,financial market and cross-border revenue and expenditure as the alternative indicators of risk early warning system.By using Granger causality test and principal component analysis,the leading indicators and synchronous indicators are selected to construct the early warning index,which is verified by historical data and causality test.Then,the synchronous indicators are synthesized into crisis index through grey correlation analysis.Impulse response function is used to reveal the impact of leading indicators on crisis index.This paper draws the following conclusions: Firstly,short-term cross-border liquidity mainly affects the stability of China’s financial system through the channels of financial institutions and financial markets.Secondly,an early warning index which is consistent with the trend of short-term cross-border capital flows is constructed,and the general direction and scale of short-term cross-border capital flows can be predicted by the early warning index.Thirdly,we use synchronous indicators to construct the crisis index,and analyze the impact of leading indicators on the crisis index.The research shows that short-term cross-border capital flows will impact a country’s economic and financial development.Therefore,how to effectively regulate short-term cross-border capital flows is particularly important.Based on the current macro-prudential supervision policy,this paper puts forward the following suggestions: First,establish a multi-sectoral coordination macro-prudential management framework.Second,pay attention to the use of price-based management tools.Third,give full play to the role of macroeconomic policies in the management of cross-border capital flows.Fourthly,we should steadily promote the strategy of financial opening up and maintain the steady operation of macroeconomic and financial markets.