Impact of US Quantitative Easing Policy on Emerging Asia
Abstractï»¿The adoption of quantitative easing (QE) policy by the United States (US) Federal Reserve Bank since early 2009 has aroused widespread concerns in Asia and elsewhere regarding its possible impact in terms of the weakening of the US dollar and stimulating capital outflows to emerging economies that might increase inflationary pressures in them. This report investigates possible impacts of US quantitative easing policy on Asian economies and financial markets. Our basic approach is to take the period of November 2009â€“October 2010, when no quantitative easing took place, as a baseline period against which we can compare the effects of quantitative easing on monetary flows during the â€œQE1â€ and â€œQE2â€ periods. We estimate that about 40% of the increase in the US monetary base in the QE1 period leaked out in the form of increased gross private capital outflows and about one-third leaked out during the first two quarters of the QE2 period. An excess private financial capital inflow to Emerging Asia of $9 billion per quarter was estimated for the first two quarters of the QE2 period, which was relatively consistent with the estimated amounts of the excess increases in foreign exchange reserves and the monetary base in the region during that period. However, this amount is small, and hence was unlikely to have a significant impact on financial markets, economic activity or inflation. We also investigate the impacts of QE policy on regional bond yields and exchange rates using event window analysis, and find that the greatest impacts were a stronger Korean won and lower bond yields in Indonesia.
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Bibliographic InfoPaper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 23215.
Date of creation: Nov 2011
Date of revision:
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financial markets; capital outflows; quantitative easing; the US; Emerging Asia;
Other versions of this item:
- Peter J. Morgan, 2011. "Impact of US Quantitative Easing Policy on Emerging Asia," Finance Working Papers 23215, East Asian Bureau of Economic Research.
- Morgan, Peter J., 2011. "Impact of US Quantitative Easing Policy on Emerging Asia," ADBI Working Papers 321, Asian Development Bank Institute.
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-14 (All new papers)
- NEP-MAC-2012-03-14 (Macroeconomics)
- NEP-MON-2012-03-14 (Monetary Economics)
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- Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2011.
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Economic Policy Review, Federal Reserve Bank of New York,
Federal Reserve Bank of New York, issue May, pages 41-59.
- Joseph Gagnon & Matthew Raskin & Julie Remache & Brian Sack, 2010. "Large-scale asset purchases by the Federal Reserve: did they work?," Staff Reports 441, Federal Reserve Bank of New York.
- Siregar, Reza, 2013. "Globalized Banking Sectors: Features and Policy Implications amidst Global Uncertainties," MPRA Paper 43709, University Library of Munich, Germany.
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