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

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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]

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Publisher Info
Article provided by Korean International Economic Association in its journal International Economic Journal.

Volume (Year): 15 (2001)
Issue (Month): 1 (April)
Pages: 95-113
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Handle: RePEc:taf:intecj:v:15:y:2001:i:1:p:95-113

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
  2. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
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  3. Adam Bennett & María Vicenta Carkovic S. & Susan Schadler & Robert Brandon Kahn, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 108, International Monetary Fund.
  4. Maurice Obstfeld, 1980. "Imperfect Asset Substitutability and Monetary Policy under Fixed Exchange Rates," NBER Working Papers 0485, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Reinhart, Carmen & Reinhart, Vincent, 1998. "Some lessons for policy makers who deal with the mixed blessing of capital inflows," MPRA Paper 7123, University Library of Munich, Germany. [Downloadable!]
  6. Kwack, Sung Yeung, 1998. "Factors contributing to the financial crisis in Korea," Journal of Asian Economics, Elsevier, vol. 9(4), pages 611-625. [Downloadable!] (restricted)
  7. Montiel, Peter J, 1994. "Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates," World Bank Economic Review, Oxford University Press, vol. 8(3), pages 311-50, September.
  8. 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 256-60, March. [Downloadable!] (restricted)
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  1. Alice Y. Ouyang & Ramkishen S. Rajan & Thomas D. Willett, 2007. "China as a Reserve Sink: The Evidence from Offset and Sterilization Coefficients," Working Papers 102007, Hong Kong Institute for Monetary Research. [Downloadable!]
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