Foreign Exchange Inflows in Emerging Markets: How Much Are They Sterilised?
AbstractAs some emerging market economies have amassed large quantities of foreign exchange reserves, concern has arisen over the sterilisation of the domestic money stock from these flows. Existing studies focus mostly on narrow (reserve) money, and estimate a high degree of sterilisation. Empirical work on the long-run relationship between money and prices emphasises broad money, yet the long-run effect of foreign exchange inflows on broad money has been almost entirely ignored. Using a sample of quarterly data from 28 countries over the period 1990-2010, it is shown that broad money is sterilised to a significantly smaller degree than reserve money. This pattern is not confined to any particular group of countries and is unrelated to the nature of the flows (e.g. current account versus capital account surpluses). Sterilisation rates have increased in Asia during the recent period of persistent accumulation of foreign exchange reserves.
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Bibliographic InfoPaper provided by University of Nottingham, School of Economics in its series Discussion Papers with number 13/01.
Date of creation: Feb 2013
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foreign exchange intervention; money; sterilisation; emerging markets JEL codes: E51; E52; F31; F33;
Find related papers by JEL classification:
- eme - - - - - -
- mar - - - - - -
- JEL - Labor and Demographic Economics - - - - -
- cod - - - - - -
- E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-09 (All new papers)
- NEP-MON-2013-03-09 (Monetary Economics)
- NEP-OPM-2013-03-09 (Open Economy Macroeconomic)
- NEP-SEA-2013-03-09 (South East Asia)
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