Research on Cross-Border Capital Flows and Financial Risk Prevention under Global Central Bank Monetary Policy Adjustments (Interest Rate Cut Cycle)

Ngoc Anh Thy Nguyen

doi:10.71222/m8ydk189

Authors

Ngoc Anh Thy Nguyen Columbia University, New York, United States Author

DOI:

https://doi.org/10.71222/m8ydk189

Keywords:

monetary policy, interest rates, capital flows, financial stability, systemic risk, emerging markets

Abstract

Against the background that major global economies have entered a cycle of interest rate cuts, the international financial environment presents a complex situation of liquidity easing, leverage expansion and asset price fluctuations. Cross-border capital flows show a trend of acceleration, reversal and structural differentiation, which has a double impact on the financial stability, exchange rate mechanism and macroeconomic management of emerging markets. Based on international financial transmission theory and the macroprudential management framework, this article systematically analyses the impact mechanism, transmission paths and risk spillover effects of the global central bank interest rate cut cycle on cross-border capital flows. It distinguishes between portfolio, banking and direct investment flows, and examines how interest rate differentials, risk appetite and expectations interact with domestic financial structures. In addition, the paper discusses policy countermeasures for financial risk prevention and control with reference to typical country experiences, highlighting the role of capital flow management tools, exchange rate flexibility and reserve buffers. The study finds that capital flows under an interest rate cut cycle are highly volatile and procyclical, and are prone to induce asset price bubbles, currency mismatches, maturity mismatches and systemic financial risks, especially in economies with shallow financial markets and weak regulatory capacity. Based on this, the article proposes a comprehensive governance strategy combining macroprudential regulation, cross-border capital flow management, foreign exchange reserve optimisation and international policy coordination, providing a reference for reconciling financial security with global monetary policy cycles in emerging markets.

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