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Capital inflows and the interest premium problem: The effects of monetary sterilisation in selected Asian economies

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  • Cavoli, Tony
  • Rajan, Ramkishen S.

Abstract

Sterilisation of capital inflows remains a pertinent policy option for many Southeast Asian economies. This paper examines some of the possible consequences of complete and incomplete sterilisation by examining its effect on domestic interest rates. We find that there is evidence to suggest that sterilisation influences local rates directly, but the relationship may not be sufficient to preserve interest differentials or to substantially soften the effects of global liquidity transfers into domestic financial market conditions.

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  • Cavoli, Tony & Rajan, Ramkishen S., 2015. "Capital inflows and the interest premium problem: The effects of monetary sterilisation in selected Asian economies," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 1-18.
    • Handle: RePEc:eee:reveco:v:39:y:2015:i:c:p:1-18
    DOI: 10.1016/j.iref.2015.05.002
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    Cited by:

    1. Puspa D. Amri & Thomas D. Willett, 2017. "Policy Inconsistencies and the Political Economy of Currency Crises," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 8(01), pages 1-24, February.
    2. Ponomarenko, Alexey, 2019. "Do sterilized foreign exchange interventions create money?," Journal of Asian Economics, Elsevier, vol. 62(C), pages 1-16.
    3. Puspa D. Amri & Greg M. Richey & Thomas D. Willett, 2016. "Capital Surges and Credit Booms: How Tight is the Relationship?," Open Economies Review, Springer, vol. 27(4), pages 637-670, September.
    4. Ramis Khabibullin & Alexey Ponomarenko & Sergei Seleznev, 2018. "Forecasting the implications of foreign exchange reserve accumulation with an agent-based model," Bank of Russia Working Paper Series wps37, Bank of Russia.

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    More about this item

    Keywords

    Monetary Sterilisation; Interest rates; Asia;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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