Short-term Capital Flow, Economic Policy Uncertainty and VIX

—Evidence from a Time-varying Analysis Framework Cai Yifei

Abstract: This paper indicates the dynamic relation among shortterm capital flow, economic policy uncertainty and VIX under a time-varying analysis framework. The results of Granger Test based on rolling window Bootstrap method illustrates that there is time-varying granger relation between short-term capital flow and economic policy uncertainty. In addition, short-term capital flow granger causes VIX in one-way. However double-way Granger causality exits be-tween economic policy uncertainty and VIX. Furthermore, we employ a newly proposed TVP-VAR model to investigate the three variables' dynamic relation. The results show that China's economic policy has changed its role from“have to adjust”to“initiative guidance”. Due to the capital account of China not completely open, the VIX has negligible impact on short-term capital flow.

Key Words: Short-term Capital Flow Economic Policy Uncertainty VIX Rolling Window Bootstrap Granger Causality Test TVP-VAR Model