STRUCTURAL BREAKS, GLOBAL UNCERTAINTY, AND CROSS-BORDER CAPITAL MOBILITY: EVIDENCE FROM A PANEL DSGE MODEL OF G7 EQUITY MARKETS

Abstract

Abstract While the disparate impacts of the VIX, GEPU, domestic fundamentals, and structural breaks have been studied in isolation, a critical gap remains. However, existing literature frequently conflates global risk with policy uncertainty and relies on linear models that fail to capture the extreme retrenchment caused by discrete regime shifts. This study explicitly addresses this gap by quantifying the exact hierarchy of these shocks, offering a comprehensive understanding of cross-border equity mobility under severe global uncertainty, risk aversion, domestic macroeconomic frictions, and structural crises. Employing a multi-country Panel Bayesian Dynamic Stochastic General Equilibrium (DSGE) model with quarterly data from 2000Q1 to 2025Q4, the results resolve a critical theoretical paradox. The posterior estimates reveal a statistically significant dichotomy in global push factors: Global Risk Aversion triggers severe panic retrenchment (Mean = -0.351), whereas global economic policy uncertainty paradoxically induces a flight-to-safety effect (Mean = 0.365), driving capital into G7 safe havens. Domestically, robust GDP growth (Mean = 0.523) and positive yield spreads (Mean = 0.302) act as dominant pull factors, though these inflows are aggressively penalized by real effective exchange rate overvaluation (Mean = -0.261) and inflation (Mean = -0.216). The structural break analysis demonstrates that synchronized global crises (Mean = -0.485) trigger a massive, non-linear capital collapse, entirely overriding traditional yield-seeking behavior. These quantitative findings provide structurally-aware intelligence for central banks calibrating macro-stability prudential buffers and institutional investors optimizing dynamic hedging strategies during periods of extreme global stress. Crucially, the structural break analysis demonstrates that synchronized global crises trigger non-linear capital collapse, entirely overriding traditional yield-seeking behavior. JEL Classification: F32, F41, E44, G15, C11.