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How Did the Bank of Thailand Respond to Capital Inflows before a Crisis? Sterilization and Base Money in the 1990's

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  • Masahiro Inoguchi

    (Graduate School of Economics, Hitotsubashi University, Japan)

Abstract

This paper explores how the Bank of Thailand (BOT) responded to capital inflows through sterilization and how it changed base money before the Asian crisis. There has been no general consensus on this subject and many previous studies have not considered the definition of sterilization. In this paper, sterilization is defined as the sale of domestic assets by a central bank in order to offset an increase in base money due to the purchase of foreign assets. When the BOT does not sell domestic assets but instead changes the value of accounts that are not counted in base money on the liabilities side of the balance sheet, it can keep base money fixed without sterilization. The results of this analysis are that the BOT kept base money constant after 1994 by means of sterilization and the manipulation of liabilities not counted in base money, while prior to 1994, there was incomplete sterilization and base money was not fixed.

Suggested Citation

  • Masahiro Inoguchi, 2003. "How Did the Bank of Thailand Respond to Capital Inflows before a Crisis? Sterilization and Base Money in the 1990's," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 48(01), pages 39-60.
    • Handle: RePEc:wsi:serxxx:v:48:y:2003:i:01:n:s0217590803000621
    DOI: 10.1142/S0217590803000621
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    References listed on IDEAS

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    1. Glick,Reuven & Hutchison,Michael (ed.), 1994. "Exchange Rate Policy and Interdependence," Cambridge Books, Cambridge University Press, number 9780521461108, October.
    2. Mr. Pierre L. Siklos, 1996. "Capital Flows in a Transitional Economy and the Sterilization Dilemma: The Hungarian Case," IMF Working Papers 1996/086, International Monetary Fund.
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    4. Mr. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 2001/152, International Monetary Fund.
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