IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v15y2001i1p95-113.html
   My bibliography  Save this article

An Empirical Assessment Of Monetary Policy Responses To Capital Inflows In Asia Before The Financial Crisis

Author

Listed:
  • Sung Yeung Kwack

Abstract

This paper highlights monetary policy implemented by monetary authorities in response to a surge of capital inflows in Asia during the period 1985-1996. It statistically assesses the effectiveness of monetary policy responses. Regression results show that Asian countries as a group took the operation of a high rate of sterilization and the foreign exchange market intervention which yielded a small change in the exchange rate. Consequently, they succeeded in keeping nominal exchange rates at desired levels and in limiting increases in monetary growth, despite a surge in capital inflows. The adoption of floating exchange rates, it is concluded, could have avoided the occurrence of financial crisis in Asia. [F32, F41]

Suggested Citation

  • Sung Yeung Kwack, 2001. "An Empirical Assessment Of Monetary Policy Responses To Capital Inflows In Asia Before The Financial Crisis," International Economic Journal, Taylor & Francis Journals, vol. 15(1), pages 95-113.
  • Handle: RePEc:taf:intecj:v:15:y:2001:i:1:p:95-113
    DOI: 10.1080/10168730100000005
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168730100000005
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/10168730100000005?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Kwack, Sung Yeung, 1998. "Factors contributing to the financial crisis in Korea," Journal of Asian Economics, Elsevier, vol. 9(4), pages 611-625.
    2. Mr. Robert Brandon Kahn & Mr. Adam Bennett & Ms. María Vicenta Carkovic S. & Ms. Susan M Schadler, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 1993/010, International Monetary Fund.
    3. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    4. Montiel, Peter J, 1994. "Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates," The World Bank Economic Review, World Bank, vol. 8(3), pages 311-350, September.
    5. Obstfeld, Maurice, 1983. "Exchange rates, inflation, and the sterilization problem: Germany, 1975-1981," European Economic Review, Elsevier, vol. 21(1-2), pages 161-189.
    6. Reinhart, Carmen M. & Dunaway, Steven, "undated". "Dealing with Capital Inflows Are There Any Lessons?," WIDER Working Papers 295321, United Nations University, World Institute for Development Economic Research (UNU-WIDER).
    7. Rodriguez, Carlos Alfredo, 1981. "Managed Float: An Evaluation of Alternative Rules in the Presence of Speculative Capital Flows," American Economic Review, American Economic Association, vol. 71(1), pages 256-260, March.
    8. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
    9. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-121, January.
    10. Obstfeld, Maurice, 1980. "Imperfect asset substitutability and monetary policy under fixed exchange rates," Journal of International Economics, Elsevier, vol. 10(2), pages 177-200, May.
    11. Giancarlo Corsetti & Paolo Pesenti & Nouriel Roubini, 1998. "What Caused the Asian Currency and Financial Crisis? Part I: A Macroeconomic Overview," NBER Working Papers 6833, National Bureau of Economic Research, Inc.
    12. Mr. Robert J. Corker & Ms. Wanda S Tseng, 1991. "Financial Liberalization, Money Demand, and Monetary Policy in Asian Countries," IMF Occasional Papers 1991/002, International Monetary Fund.
    13. Ms. Carmen Reinhart & Mr. Mohsin S. Khan, 1995. "Capital Flows in the APEC Region," IMF Occasional Papers 1995/015, International Monetary Fund.
    14. Kenneth B. Bercuson & Linda M. Koenig, 1993. "The Recent Surge in Capital Inflows to Three ASEAN Countries: Causes and Macroeconomic Impact," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ15, April.
    15. Steven Radelet & Jeffrey D. Sachs, 1998. "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 1-90.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
    2. Gan, Pei-Tha, 2014. "The precise form of financial integration: Empirical evidence for selected Asian countries," Economic Modelling, Elsevier, vol. 42(C), pages 208-219.
    3. Khemraj, Tarron & Pasha, Sukrishnalall, 2011. "Monetary sterilization and dual nominal anchors: some Caribbean examples," MPRA Paper 34503, University Library of Munich, Germany.
    4. Wu, Ying, 2009. "Measuring China's monetary sterilization and autonomy in the era of globalization: 1995-2005," Journal of Asian Economics, Elsevier, vol. 20(3), pages 336-347, May.
    5. Kwack, Sung Y., 2005. "Exchange rate and monetary regime options for regional cooperation in East Asia," Journal of Asian Economics, Elsevier, vol. 16(1), pages 57-75, February.
    6. Ying, Yung-Hsiang & Kuan, Chung-Ming & Tung, Chris Y. & Chang, Koyin, 2013. "“Capital mobility in East Asian Countries is not so high”: Examining the impact of sterilization on capital flows," China Economic Review, Elsevier, vol. 24(C), pages 55-64.
    7. Emmanuel K. K. Lartey, 2008. "Capital Inflows, Dutch Disease Effects, and Monetary Policy in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 971-989, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kwack, Sung Yeung, 2000. "An empirical analysis of the factors determining the financial crisis in Asia," Journal of Asian Economics, Elsevier, vol. 11(2), pages 195-206.
    2. Reinhart, C.M. & Dunaway, S., 1996. "Dealing with Capital Inflows. Are There Any Lessons?," Research Paper 28, World Institute for Development Economics Research.
    3. Clara Garcia, 2004. "Capital Inflows, Policy Responses, and Their Ill Consequences: Thailand, Malaysia, and Indonesia in the Decade Before the Crises," Working Papers wp81, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Ms. Linda M. Koenig, 1996. "Capital Inflows and Policy Responses in the AsEAN Region," IMF Working Papers 1996/025, International Monetary Fund.
    5. Mr. Alejandro Lopez Mejia, 1999. "Large Capital Flows: A Survey of the Causes, Consequences, and Policy Responses," IMF Working Papers 1999/017, International Monetary Fund.
    6. Louis Kasekende & Damoni Kitabire & Matthew Martin, 1996. "Capital Inflows and Macroeconomic Policy in Sub-Saharan Africa," Economics Working Paper Archive wp_158, Levy Economics Institute.
    7. Gian Maria Milesi Ferretti & Assaf Razin, 1999. "Current Account Deficits and Capital Flows in East Asia and Latin America: Are the Early Nineties Different From the Early Eighties," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues, pages 57-108, National Bureau of Economic Research, Inc.
    8. Barbara Stallings, 2004. "Financial Liberalization, Crisis, and Rescue: Lessons for China from Latin America and East Asia?," IDB Publications (Working Papers) 48078, Inter-American Development Bank.
    9. Soo Khoon Goh & Guay Lim & Nilss Olekalns, 2006. "Deviations from uncovered interest parity in Malaysia," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 745-759.
    10. Cheung, Yan-Leung & Cheung, Yin-Wong & Ng, Chris C., 2007. "East Asian equity markets, financial crises, and the Japanese currency," Journal of the Japanese and International Economies, Elsevier, vol. 21(1), pages 138-152, March.
    11. Ms. Carmen Reinhart & Mr. Mohsin S. Khan, 1995. "Capital Flows in the APEC Region," IMF Occasional Papers 1995/015, International Monetary Fund.
    12. Mark M. Spiegel, 1995. "Sterilization of capital inflows through the banking sector: evidence from Asia," Economic Review, Federal Reserve Bank of San Francisco, pages 17-34.
    13. Femminis, Gianluca & Ruggerone, Luigi, 2001. "'Crony Capitalism', Bail Outs and Bank Runs," CEPR Discussion Papers 2751, C.E.P.R. Discussion Papers.
    14. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1996. "Inflows of Capital to Developing Countries in the 1990s," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 123-139, Spring.
    15. Manuel F. Montes, 1996. "Country Responses to Massive Capital Flows," WIDER Working Paper Series wp-1996-121, World Institute for Development Economic Research (UNU-WIDER).
    16. Charles Harvie & Hyun-Hoon Lee, 2003. "New Regionalism in East Asia: How Does It Relate to the East Asian Economic Development Model?," Palgrave Macmillan Books, in: Tran Hoa & Charles Harvie (ed.), New Asian Regionalism, chapter 4, pages 40-71, Palgrave Macmillan.
    17. Komulainen, Tuomas, 2001. "Currency crises in emerging markets : Capital flows and herding behaviour," BOFIT Discussion Papers 10/2001, Bank of Finland, Institute for Economies in Transition.
    18. F. Gulcin Ozkan, 2005. "Currency and Financial Crises in Turkey 2000 –2001: Bad Fundamentals or Bad Luck?," The World Economy, Wiley Blackwell, vol. 28(4), pages 541-572, April.
    19. José Donadieu, 2003. "La libéralisation financière : une déstructuration de la cohérence des modèles de développement thaïlandais et malais," Revue Tiers Monde, Programme National Persée, vol. 44(173), pages 171-194.
    20. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:15:y:2001:i:1:p:95-113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.