The Influential Factors of Financial Cycle Spillover: Evidence from China

This study explores the non-linear effects of economic policy uncertainty, bilateral trade intensity, and capital flow on China’s financial cycle spillover when institutional distance changes over the period 1997Q1-2017Q4. Main findings indicate that there is a linear effect of these influential factors on China’s financial cycle spillover during the overall sample period and a non-linear effect during the normal and crisis periods. The transition function exhibits a smooth and gradual change trend during the normal period and a double-threshold effect during the crisis one. Furthermore, these influential factors present differences with regard to facilitating and restraining effect in different periods. These results have important implications for policymakers to make macroprudential policies.