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Reserve accumulation and monetary sterilization in Singapore and Taiwan

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  • Alice Ouyang
  • Ramkishen Rajan

Abstract

Asian economies have embraced the globalization of production, trade and capital flows. One dimension of contemporary globalization has been the heavy exchange rate management by, and rapid and massive stockpiling of, foreign exchange reserves in Asia. This article undertakes an empirical investigation to assess the extent of de facto sterilization and capital mobility in Singapore and Taiwan using quarterly data between 1990 and 2008. Our empirical results suggest that, since, 2001 both Singapore and Taiwan have a high degree of - but not perfect - de facto capital mobility. To date, this high-effective capital mobility has not undermined the ability of the central bank in either economies to sterilize their respective foreign exchange intervention but may make the process increasingly difficult over time.

Suggested Citation

  • Alice Ouyang & Ramkishen Rajan, 2011. "Reserve accumulation and monetary sterilization in Singapore and Taiwan," Applied Economics, Taylor & Francis Journals, vol. 43(16), pages 2015-2031.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:16:p:2015-2031
    DOI: 10.1080/00036840902984373
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    Cited by:

    1. Cavoli, Tony & Rajan, Ramkishen S., 2015. "Capital inflows and the interest premium problem: The effects of monetary sterilisation in selected Asian economies," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 1-18.
    2. Tony Cavoli, 2017. "Managing Capital Inflows Indirectly? On the Determinants of Monetary Sterilization with Reference to East Asia," Review of International Economics, Wiley Blackwell, vol. 25(2), pages 262-278, May.
    3. Md. Zahangir Alam & Muhammad Abdur Rahim, 2013. "Foreign Exchange Reserves: Bangladesh Perspective," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 2(4), pages 01-12, October.
    4. Michael Bleaney & Sharmila Devadas, 2017. "Foreign Exchange Inflows in Emerging Markets: How Much are they Sterilised?," Manchester School, University of Manchester, vol. 85(3), pages 261-281, June.
    5. Devereux, Michael B. & Yetman, James, 2014. "Globalisation, pass-through and the optimal policy response to exchange rates," Journal of International Money and Finance, Elsevier, vol. 49(PA), pages 104-128.
    6. Ponomarenko, Alexey, 2019. "Do sterilized foreign exchange interventions create money?," Journal of Asian Economics, Elsevier, vol. 62(C), pages 1-16.
    7. Nuttathum Chutasripanich & James Yetman, 2015. "Foreign exchange intervention: strategies and effectiveness," BIS Working Papers 499, Bank for International Settlements.
    8. Jaromir Benes & Andrew Berg & Rafael Portillo & David Vavra, 2015. "Modeling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New-Keynesian Framework," Open Economies Review, Springer, vol. 26(1), pages 81-108, February.
    9. Abdul Rishad & Sanjeev Gupta & Akhil Sharma, 2022. "An Assessment of The Effectiveness of Sterilization of Central Bank Interventions: Empirical Evidence from India," Prague Economic Papers, Prague University of Economics and Business, vol. 2022(5), pages 417-440.
    10. Ramis Khabibullin & Alexey Ponomarenko & Sergei Seleznev, 2018. "Forecasting the implications of foreign exchange reserve accumulation with an agent-based model," Bank of Russia Working Paper Series wps37, Bank of Russia.

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