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An Empirical Assessment Of Monetary Policy Responses To Capital Inflows In Asia Before The Financial Crisis

  • Sung Yeung Kwack
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    This paper highlights monetary policy implemented by monetary authorities in response to a surge of capital inflows in Asia during the period 1985-1996. It statistically assesses the effectiveness of monetary policy responses. Regression results show that Asian countries as a group took the operation of a high rate of sterilization and the foreign exchange market intervention which yielded a small change in the exchange rate. Consequently, they succeeded in keeping nominal exchange rates at desired levels and in limiting increases in monetary growth, despite a surge in capital inflows. The adoption of floating exchange rates, it is concluded, could have avoided the occurrence of financial crisis in Asia. [F32, F41]

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/10168730100000005
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    Article provided by Taylor & Francis Journals in its journal International Economic Journal.

    Volume (Year): 15 (2001)
    Issue (Month): 1 ()
    Pages: 95-113

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    Handle: RePEc:taf:intecj:v:15:y:2001:i:1:p:95-113
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    1. Obstfeld, Maurice, 1980. "Imperfect asset substitutability and monetary policy under fixed exchange rates," Journal of International Economics, Elsevier, vol. 10(2), pages 177-200, May.
    2. Corsetti, G. & Pesenti, P. & Roubini, N., 1998. "What Caused the Asian Currency and Financial Crisis?," Papers 343, Banca Italia - Servizio di Studi.
    3. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
    4. Obstfeld, Maurice, 1983. "Exchange rates, inflation, and the sterilization problem: Germany, 1975-1981," European Economic Review, Elsevier, vol. 21(1-2), pages 161-189.
    5. Reinhart, Carmen & Khan, Mohsin, 1995. "Capital Flows in the APEC Region," MPRA Paper 8200, University Library of Munich, Germany.
    6. Montiel, Peter J., 1993. "Capital mobility in developing countries : some measurement issues and empirical estimates," Policy Research Working Paper Series 1103, The World Bank.
    7. Reinhart, Carmen & Reinhart, Vincent, 1998. "“Some Lessons for Policy Makers Who Deal with the Mixed Blessing of Capital Inflows,”," MPRA Paper 7123, University Library of Munich, Germany.
    8. Robert Brandon Kahn & Adam Bennett & María Vicenta Carkovic S. & Susan Schadler, 1993. "Recent Experiences with Surges in Capital Inflows," IMF Occasional Papers 108, International Monetary Fund.
    9. Rodriguez, Carlos Alfredo, 1981. "Managed Float: An Evaluation of Alternative Rules in the Presence of Speculative Capital Flows," American Economic Review, American Economic Association, vol. 71(1), pages 256-60, March.
    10. Kwack, Sung Yeung, 1998. "Factors contributing to the financial crisis in Korea," Journal of Asian Economics, Elsevier, vol. 9(4), pages 611-625.
    11. Robert J. Corker & Wanda Tseng, 1991. "Financial Liberalization, Money Demand, and Monetary Policy in Asian Countries," IMF Occasional Papers 84, International Monetary Fund.
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