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Intervention, sterilization, and monetary control in Korea and Taiwan

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  • Ramon Moreno

Abstract

This paper uses a four-variable vector autoregression model to explore how monetary authorities responded to shocks in Korea and Taiwan over the period 1981.1-1994.12. The analysis reveals that sterilization is an important element of the response to shocks to foreign assets in both economies. In particular, monetary authorities do not appear to be prepared to accept fluctuations in the exchange rate and the money supply that may result from changes in foreign assets, but more readily accept fluctuations in these variables that result from domestic credit shocks. There are also differences in the responses of Korea and Taiwan that suggest that the former may be more insulated from external shocks.

Suggested Citation

  • Ramon Moreno, 1996. "Intervention, sterilization, and monetary control in Korea and Taiwan," Economic Review, Federal Reserve Bank of San Francisco, pages 23-33.
    • Handle: RePEc:fip:fedfer:y:1996:p:23-33:n:3
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    File URL: http://www.frbsf.org/econrsrch/econrev/96-3/moreno.pdf
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    References listed on IDEAS

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    1. Reuven Glick & Ramon Moreno, 1994. "Capital flows and monetary policy in East Asia," Pacific Basin Working Paper Series 94-08, Federal Reserve Bank of San Francisco.
    2. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    3. Grilli, Vittorio U., 1986. "Buying and selling attacks on fixed exchange rate systems," Journal of International Economics, Elsevier, vol. 20(1-2), pages 143-156, February.
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    Cited by:

    1. Igor Ljubaj & Ana Martinis & Marko Mrkalj, 2010. "Capital Inflows and Efficiency of Sterilisation – Estimation of Sterilisation and Offset Coefficients," Working Papers 24, The Croatian National Bank, Croatia.
    2. 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.
    3. Robert Dekle & Kenneth Kletzer, 2002. "Domestic Bank Regulation and Financial Crises: Theory and Empirical Evidence from East Asia," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 507-558, National Bureau of Economic Research, Inc.
    4. Ozgur ASLAN & H. Levent KORAP, 2007. "Monetary Transmission Mechanism In An Open Economy Framework: The Case Of Turkey," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 5(1), pages 41-66, May.
    5. Cardarelli, Roberto & Elekdag, Selim & Kose, M. Ayhan, 2010. "Capital inflows: Macroeconomic implications and policy responses," Economic Systems, Elsevier, vol. 34(4), pages 333-356, December.
    6. Menzie D. Chinn & Kenneth M. Kletzer, 1999. "International capital inflows, domestic financial intermediation and financial crises under imperfect information," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    7. 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.
    8. Akhand Akhtar Hossain, 2015. "Economic Management in a Volatile Environment: Monetary and Financial Issues by Ramkishen S. Rajan and Sasidaran Gopalan Palgrave Macmillan , London , 2015 Pp. xx+283. ISBN 9 78 137 37151-5," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 29(2), pages 103-106, November.
    9. Djedaiet Aissa & Ayad Hicham, 2022. "Hard currency inflows and sterilization policy in Algeria," SN Business & Economics, Springer, vol. 2(9), pages 1-16, September.
    10. Emad Omar Elhendawy, 2015. "Sterilization and Inflation in the Long-Term Empirical Evidence from Egypt," Applied Economics and Finance, Redfame publishing, vol. 2(2), pages 68-78, May.
    11. David Cook & James Yetman, 2012. "Expanding central bank balance sheets in emerging Asia: a compendium of risk and some evidence," BIS Papers chapters, in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 30-75, Bank for International Settlements.
    12. 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.

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