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A Unifying Framework for Analysing Offsetting Capital Flows and Sterilization: Germany and the ERM

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  • Brissimis, Sophocles N
  • Gibson, Heather D
  • Tsakalotos, Euclid

Abstract

This paper provides a unifying framework in which identified offset and sterilization equations can be derived and estimated. The theoretical model suggests that, in the case where the central bank cares about both external and internal goals and capital is less than perfectly mobile, there will be some offsetting capital flows and the central bank will sterilize. Several results from the literature are encompassed as special cases. The equations are estimated for the German experience of the 1980s and the results point to active sterilization by the Bundesbank during this period. Copyright @ 2002 by John Wiley & Sons, Ltd. All rights reserved.

Suggested Citation

  • Brissimis, Sophocles N & Gibson, Heather D & Tsakalotos, Euclid, 2002. "A Unifying Framework for Analysing Offsetting Capital Flows and Sterilization: Germany and the ERM," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 7(1), pages 63-78, January.
    • Handle: RePEc:ijf:ijfiec:v:7:y:2002:i:1:p:63-78
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    Cited by:

    1. Ouyang, Alice Y. & Rajan, Ramkishen S. & Willett, Thomas D., 2010. "China as a reserve sink: The evidence from offset and sterilization coefficients," Journal of International Money and Finance, Elsevier, vol. 29(5), pages 951-972, September.
    2. Vincent Bouvatier, 2010. "Hot money inflows and monetary stability in China: how the People's Bank of China took up the challenge," Applied Economics, Taylor & Francis Journals, vol. 42(12), pages 1533-1548.
    3. Goh, Soo Khoon & McNown, Robert, 2015. "Examining the exchange rate regime–monetary policy autonomy nexus: Evidence from Malaysia," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 292-303.
    4. Zhang, Chenying, 2010. "Sterilization in China: Effectiveness and Cost," Working Papers 10-29, University of Pennsylvania, Wharton School, Weiss Center.
    5. Zhuo Tan & Shenggang Yang, 2012. "Neutralization in China: evidence from the balance sheet of the People’s Bank of China," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 15(1), pages 25-31, March.
    6. Khemraj, Tarron & Pasha, Sukrishnalall, 2011. "Monetary sterilization and dual nominal anchors: some Caribbean examples," MPRA Paper 34503, University Library of Munich, Germany.
    7. Tarron Khemraj, 2009. "Excess liquidity and the foreign currency constraint: the case of monetary management in Guyana," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2073-2084.
    8. Yongzhong Wang, 2010. "Effectiveness of Capital Controls and Sterilizations in China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 18(3), pages 106-124, May.
    9. Alice Ouyang & Ramkishen Rajan & Tom Willett, 2008. "Managing the Monetary Consequences of Reserve Accumulation in Emerging Asia," Global Economic Review, Taylor & Francis Journals, vol. 37(2), pages 171-199.
    10. Sergio Clavijo & Carlos Varela, 2003. "Flotación Cambiaria y Esterilización Monetaria: La Experiencia de Colombia," Borradores de Economia 256, Banco de la Republica de Colombia.
    11. Zhaosu MENG & Wei WEI & Xiaotong LIU & Kedong YIN, 2018. "The Influence of International Capital Flow on the Effectiveness of Chinese Monetary Policy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 21-40, December.
    12. Alice Ouyang & Ramkishen Rajan, 2011. "Reserve accumulation and monetary sterilization in Singapore and Taiwan," Applied Economics, Taylor & Francis Journals, vol. 43(16), pages 2015-2031.
    13. Igor Ljubaj & Ana Martinis & Marko Mrkalj, 2010. "Capital Inflows and Efficiency of Sterilisation – Estimation of Sterilisation and Offset Coefficients," Working Papers 24, The Croatian National Bank, Croatia.
    14. Heather D. Gibson & Euclid Tsakalotos, 2005. "EU Enlargement, ERM II and Lessons from the Southern European countries," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 3(1), pages 41-78.
    15. Ashraf Nakibullah, 2011. "Monetary Policy and Performance of the Oil-Exporting Gulf Cooperation Council Countries," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 10(2), pages 139-157, August.
    16. Gábor, Tamás, 2012. "China's monetary sterilization and it's economical relationship with the European Union," MPRA Paper 40362, University Library of Munich, Germany.
    17. Lim, Ewe Ghee & Goh, SooKhoon, 2011. "Is Malaysia exempted from impossible trinity: empirical evidence from 1991-2009," MPRA Paper 30804, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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