Abstract: The article studies how macroeconomic prudential policies can reduce financial imbalances and social welfare losses caused by investment overheating caused by cross-border capital flows in an open economy, and focuses on analyzing how to use prudential tools to suppress the procyclical accumulation of systemic risks from cross-border capital flow channels under different default probability conditions. Then, a four variable MS-VAR model is used to, This paper empirically analyzes the regional effects of different macro prudential policy instruments on China's business cycle, financial cycle and financial leverage. The results indicate that the implementation of macro prudential policies towards the domestic financial sector and cross-border capital flows has obvious regional characteristics. In the regular period, macro prudential supervision targeting the domestic financial sector should be the main focus; During the outbreak of crises, efforts should be made to strengthen macro prudential policies for cross-border capital flows, while relaxing macro prudential management of the domestic financial sector.

Keywords: cross-border capital flows; Macroprudential management; Financial stability; MS-VAR model;