The Unassuming Economist

From a paper by Du Zhang and Rundong Chen:

“This article analyzes the impact of global economic uncertainty (GEU) and country-specific economic uncertainty (CSEU) on cross-border capital flows using quarterly data from 31 countries between 1997 and 2022, employing a DFM-SV model. The findings reveal that rising GEU leads to capital inflows, while increasing CSEU results in capital outflows. Macroeconomic variables such as CPI and interest rate spread can moderate the effects of GEU and CSEU on capital flows. Additionally, the equity index mitigates capital outflows driven by higher CSEU. In emerging markets, capital flows are particularly sensitive to macroeconomic factors. The influence of GEU on capital flows is moderated by government spending, stock indices, and the real effective exchange rate (REER). Government spending, import volumes, and stock market volatility exacerbate CSEU-induced capital outflows, while the REER dampens them. These insights deepen our understanding of economic uncertainty’s role in cross-border capital movements, offering valuable implications for market regulators, firms, and investors.”