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Asia Confronts the Impossible Trinity

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  • Ila Patnaik

    (Asian Development Bank Institute)

  • Ajay Shah

Abstract

In this paper, we examine capital account openness and exchange rate flexibility in 11 Asian economies. Asia has made slow progress in de jure capital account openness, but has made much more progress in de facto capital account openness. While there has been a gradual increase in exchange rate flexibility, most Asian economies continue to have largely inflexible exchange rates. This combination of advancing de facto capital account integration without greater exchange rate flexibility has led to procyclical monetary policy, when capital flows are procyclical. This paper emphasises the need for a consistent monetary policy framework.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22814.

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Date of creation: Jan 2010
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Handle: RePEc:eab:macroe:22814

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Keywords: capital account openness; exchange rate flexibility; Asia; capital account integration; monetary policy;

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References

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  1. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9807, Universite de Montreal, Departement de sciences economiques.
  2. Ramachandran, M. & Srinivasan, Naveen, 2007. "Asymmetric exchange rate intervention and international reserve accumulation in India," Economics Letters, Elsevier, Elsevier, vol. 94(2), pages 259-265, February.
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  4. Ila Patnaik & Ajay Shah, 2009. "The difficulties of the Chinese and Indian exchange rate regimes," Macroeconomics Working Papers 22975, East Asian Bureau of Economic Research.
  5. Ajay Shah & Ila Patnaik & Rudrani Bhattacharya, 2008. "Early Warnings of Inflation in India," Working Papers id:1682, eSocialSciences.
  6. Aizenman, Joshua, 2008. "On the hidden links between financial and trade opening," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(3), pages 372-386, April.
  7. Patnaik, Ila & Shah, Ajay, 2010. "Why India choked when Lehman broke," Working Papers, National Institute of Public Finance and Policy 10/63, National Institute of Public Finance and Policy.
  8. Zeileis, Achim & Shah, Ajay & Patnaik, Ila, 2010. "Testing, monitoring, and dating structural changes in exchange rate regimes," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 54(6), pages 1696-1706, June.
  9. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 119(1), pages 1-48, February.
  10. Philip R. Lane & Gian Maria Milesi-Ferretti, 2006. "The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities,1970–2004," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp126, IIIS.
  11. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
  12. Jeffrey A. Frankel & Shang-Jin Wei, 2007. "Assessing China's Exchange Rate Regime," NBER Working Papers 13100, National Bureau of Economic Research, Inc.
  13. Benassy-Quere, Agnes & Coeure, Benoit & Mignon, Valerie, 2006. "On the identification of de facto currency pegs," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 112-127, March.
  14. Ettore Dorrucci & Alexis Meyer-Cirkel & Daniel Santabárbara, 2009. "Domestic Financial Development in Emerging Economies: Evidence and Implications," Occasional Paper Series 102, European Central Bank.
  15. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
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Cited by:
  1. Enowbi Batuo, Michael & Asongu, Simplice A., 2012. "The impact of liberalisation policies on income inequality in african countries," MPRA Paper 43344, University Library of Munich, Germany.
  2. Asongu Simplice, 2013. "Liberalization and financial sector competition: a critical contribution to the empirics with an African assessment," Working Papers 13/031, African Governance and Development Institute..
  3. Peter J. Morgan, 2013. "Monetary Policy Frameworks in Asia : Experience, Lessons, and Issues," Finance Working Papers 23639, East Asian Bureau of Economic Research.
  4. Asongu Simplice, 2013. "Inequality, poverty and quality of institutions: which freedom channels of globalization matter for Africa?," Working Papers 13/014, African Governance and Development Institute..
  5. Asongu, Simplice A, 2013. "How has politico-economic liberalization affected financial allocation efficiency? Fresh African evidence," MPRA Paper 44995, University Library of Munich, Germany.
  6. Asongu Simplice & Michael E. Batuo, 2012. "The Impact of Liberalisation Policies on Inequality in Africa," Working Papers 12/038, African Governance and Development Institute..
  7. Catherine Figuière & Laëtitia Guilhot, 2011. "Évolution du rôle du yuan en Asie orientale : la guerre des monnaies aura-t-elle lieu ?," Post-Print halshs-00697581, HAL.
  8. Sunanda Sen, 2012. "Managing Global Financial Flows at the Cost of National Autonomy: China and India," Economics Working Paper Archive wp_714, Levy Economics Institute.
  9. Petar Vujanovic, 2011. "Understanding the Recent Surge in the Accumulation of International Reserves," OECD Economics Department Working Papers 866, OECD Publishing.
  10. Guonan Ma & Robert N McCauley, 2013. "Is China or India more financially open?," BIS Working Papers 410, Bank for International Settlements.

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