Analysis of the effectiveness of macro-prudential policy regulation in China in the context of digital finance

In the context of the rapid development of financial figures, studying the effective mechanisms of macro-prudential policies are theoretically and practically significant. Here, we establish a revised Bordo and Jeanne model (Bordo and Jeanne, 2002) to theoretically verify whether implementation of macro-prudential policies can effectively inhibit the accumulation of financial risks. Subsequently, the China Financial Stress Index is constructed to measure systemic risk. Macro data from January 2009 to December 2022 were selected, and the non-linear relationship between macro-prudential policy tools and systemic risk in the digital finance context was analysed using principal component analysis and the Markov-switching vector autoregressive model. The analysis shows that development of digital finance exacerbates systemic financial risks, and strong regulations are more conducive to restraining systemic financial risk. Thus, development of digital finance significantly affects the impact of macro-prudential policy regulation. Further, this study provides policy suggestions for standardising development of the digital financial market, improving the systemic risk monitoring and evaluation system, optimising the macro-prudential policy mechanism, and strengthening coordination between macro policies.