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International monetary transmission in East Asia: Floaters, non-floaters, and capital controls

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  • Kim, Soyoung
  • Yang, Doo Yong

Abstract

This paper analyzes the impacts of the United States (US) monetary shocks on East Asian countries using structural vector-autoregression (VAR) model. We find that the impacts of the US monetary shocks on East Asian domestic interest rates and exchange rates contradict conventional wisdom. The conventional exchange rate channel is unlikely to play much role in the transmission of the US monetary policy shocks to floaters in East Asian countries, excluding Japan. In these countries, the domestic interest rates respond strongly to the US interest rate changes, by giving up monetary autonomy, probably because of fear of floating. However, the domestic interest rate does not respond much in countries with fixed exchange rate regimes and capital account restrictions, such as China and Malaysia. This may suggest that the countries with fixed exchange rate regimes enjoy a higher degree of monetary autonomy, most likely with the help of capital account restrictions.

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  • Kim, Soyoung & Yang, Doo Yong, 2012. "International monetary transmission in East Asia: Floaters, non-floaters, and capital controls," Japan and the World Economy, Elsevier, vol. 24(4), pages 305-316.
    • Handle: RePEc:eee:japwor:v:24:y:2012:i:4:p:305-316
    DOI: 10.1016/j.japwor.2012.05.003
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    Cited by:

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    2. Yang, Xite & Zhang, Qin & Liu, Haiyue & Liu, Zihan & Tao, Qiufan & Lai, Yongzeng & Huang, Linya, 2024. "Economic policy uncertainty, macroeconomic shocks, and systemic risk: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    3. Mala Raghavan & Mardi Dungey, 2015. "Should ASEAN-5 monetary policy-makers act pre-emptively against stock market bubbles?," Applied Economics, Taylor & Francis Journals, vol. 47(11), pages 1086-1105, March.
    4. Vespignani, Joaquin L. & Ratti, Ronald A., 2016. "Not all international monetary shocks are alike for the Japanese economy," Economic Modelling, Elsevier, vol. 52(PB), pages 822-837.
    5. Kim, Soyoung & Mehrotra, Aaron, 2017. "Managing price and financial stability objectives in inflation targeting economies in Asia and the Pacific," Journal of Financial Stability, Elsevier, vol. 29(C), pages 106-116.
    6. Soyoung Kim & Aaron Mehrotra, 2015. "Managing price and financial stability objectives - what can we learn from the Asia-Pacific region?," BIS Working Papers 533, Bank for International Settlements.
    7. Chokri Zehri, 2020. "The Domestic Impacts And Spillovers Of Capital Controls," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 65(227), pages 31-66, October –.
    8. Anastasios Evgenidis & Costas Siriopoulos, 2015. "What are the International Channels Through Which a US Policy Shock is Transmitted to The World Economies? Evidence from a Time Varying FAVAR," Working Papers 190, Bank of Greece.
    9. Serag Masoud & Murad A. Bein & Wagdi Khalifa, 2022. "Examining the relationship between unconventional monetary policy and exchange rate movements: Empirical evidence from United States quantitative easing," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3444-3458, July.
    10. Chokri Zehri & David McMillan, 2020. "Restrictive policy impacts in emerging economies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1815979-181, January.
    11. Agata Wierzbowska, 2015. "Financial markets in CEE countries and their role in transmission of euro area monetary policy shocks," European Journal of Business and Economics, Central Bohemia University, vol. 10(2), pages 7321:10-732, January.
    12. Vu, Tuan Khai & Nakata, Hayato, 2014. "The Macroeconomic Effects of Oil Price Fluctuations in ASEAN Countries: Analysis Using a VAR with Block Exogeneity," Discussion Paper Series 619, Institute of Economic Research, Hitotsubashi University.
    13. Sharada Nia Davidson, 2022. "Regional Integration and Decoupling in the Asia Pacific: A Bayesian Panel VAR Approach," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(4), pages 773-807, December.
    14. Yiping Huang & Peichu Xie & Jiao Wang, 2014. "International Transmission of the People's Bank of China's Balance Sheet Expansion," Asian Economic Policy Review, Japan Center for Economic Research, vol. 9(2), pages 276-296, July.
    15. Vu, Tuan Khai & Nakata, Hayato, 2018. "Oil price fluctuations and the small open economies of Southeast Asia: An analysis using vector autoregression with block exogeneity," Journal of Asian Economics, Elsevier, vol. 54(C), pages 1-21.

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    More about this item

    Keywords

    Structural VAR; Monetary shocks; Interest rate; Exchange rate; Exchange rate regime;
    All these keywords.

    JEL classification:

    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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