Global economic policy Uncertainty, gross capital Inflows, and the mitigating role of Macroprudential policies

Andrikopoulos, Athanasios; Chen, Zhongfei; Chortareas, Georgios; Li, Kexin

Abstract

We consider the effects of global economic policy uncertainty on capital inflows and the potentially mitigating effect of different macroprudential frameworks and policies on this effect. While macroprudential policies aim to maintain domestic financial stability, they can also affect cross-border capital flows. We use a global panel of 84 economies during 1997–2018, to analyze the relationships among global economic policy uncertainty, macroprudential policies, and gross capital inflows. We find that global economic policy uncertainty impacts negatively on gross capital inflows. The tightening of macroprudential policies, however, can moderate this effect by nearly 30%-40%. Disaggregating macroprudential policy instruments indicates that supply-side tools, especially those related to bank capital requirements, are the most effective. Moreover, heterogeneity exists among different capital inflows; more specifically, portfolio investment is influenced most significantly, while direct and other types of investment remain unchanged. Our results have direct implications for the utilization of macroprudential policies in managing capital inflows.

Citation

Andrikopoulos, A., Chen, Z., Chortareas, G., & Li, K. (2023). Global economic policy Uncertainty, gross capital Inflows, and the mitigating role of Macroprudential policies. Journal of International Money and Finance, 131, Article 102793. https://doi.org/10.1016/j.jimonfin.2022.102793

• Journal Article Type: Article
• Acceptance Date: Dec 21, 2022
• Online Publication Date: Dec 31, 2022
• Publication Date: Mar 1, 2023
• Deposit Date: Jan 30, 2023
• Publicly Available Date: Jul 1, 2024
• Journal: Journal of International Money and Finance
• Print ISSN: 0261-5606
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 131
• Article Number: 102793
• DOI: https://doi.org/10.1016/j.jimonfin.2022.102793
• Keywords: Global economic policy uncertainty; Gross capital inflows; Macroprudential policies
• Public URL: https://hull-repository.worktribe.com/output/4188135