Financial Shocks,Short-term Cross-border Capital Flows And Risk Contagion

Now global economy needs new drivers of growth and emerging economies need a stable domestic and international environment for economic development.Countries are exploring new models of international economic cooperation.It is in this international economic environment that the expansion of cooperation among emerging economies,including the Asian infrastructure investment bank,the BRICS Bank and the "One Belt And One Road" strategy,has taken shape.Financial exchanges among emerging economies are conducive to the rational allocation of resources,but also promote the spread of financial risks among emerging economies.Among them,short-term cross-border capital flows are fast and large,and play an important role as a medium in the process of risk transmission.Therefore,it is of great significance for emerging economies to study the cross-border contagion of financial risks and to discuss the role of short-term cross-border capital flows in risk contagion in preventing cross-border contagion of financial risks.As the most representative emerging economies,BRICS have a certain influence in emerging economies.Especially for China,as the largest emerging economy,it actively promotes the cooperation with emerging economies and the implementation of RMB internationalization strategy,which increases China's influence on emerging economies.As the world's largest economy,the us has played a crucial role in global financial stability.This paper based on the perspective of external financial shocks,with 20 emerging economies as sample,using 2005 q1-2019 q3 monthly and quarterly data,through the establishment of the panel VAR model,and use GMM estimation method,verified the interest rate shock from BRICS and the United States,money supply shocks and volatility impact on emerging economies foreign exchange market,the stock market,credit market and the influence of external reserves,short-term cross-border capital flows and add variables,validation of external financial shocks based on short-term channels cross-border capital flows to emerging economies.The empirical results confirm that financial shocks,whether from the BRICS or the United States,have a significant impact on the financial stability of emerging economies.Short-term cross-border capital flows play an important role in the cross-border contagion of financial risks,and with the extension of time,their transmission effect on risks is also enhanced.When extreme financial risks occur,the role of short-term cross-border capital flows is weakened.At this time,the change in investor behavior caused by market panic is the main cause of risk contagion.The interest rate shock from China has a certain particularity--the increase of interest rate in China has a positive spillover effect on credit growth and short-term cross-border capital inflow in other emerging economies.As cooperation among emerging economies deepens,the adverse effects of risk contagion will be further increased.Therefore,emerging economies should strengthen macro-prudential regulation of short-term cross-border capital flows,establishing a risk identification,monitoring and early warning system to guard against excessive contagion of financial risks.Promoting financial cooperation among emerging economies,including regulatory system docking and regulatory cooperation to improve the ability to manage financial risks.Establishing a common monetary policy coordination mechanism to avoid vicious competition among economies.Moreover we emerging economies should also improve financial systems,further develop financial markets,and open capital account orderly,to strengthen the resilience of the financial system to external shocks.