Exchange Rate Appreciation, Capital Flows and Excess Liquidity: Adjustment and Effectiveness of Policy Responses
The 2008-2009 Global Financial Crisis (GFC) brought the global economy to the brink of a global depression not seen since the Great Depression of the 1930’s. While several of the European peripheral countries remain deeply-mired in dealing with banking and sovereign debt problems, the Asian region is fast relegating the GFC as a thing of the past with its swift and immediate recovery from the recent crisis. Most recent indicators of economic performance by individual economies in the region show that indeed, it is the fastest growing region in the world at the moment. Such dynamism in the region, however, also comes with its own set of pressing and immediate challenges. Buoyant growth in the region, spurred to a great extent by the ultra-low policy rates in the region as well as by the series of quantitative easing in the advanced economies to revive their anemic growth prospects, has led foreign capital returning to the Asian region. With memories of the 1997-1998 Asian financial crisis still firmly etched in the memories of policymakers in the region, they know fully-well that capital inflows can both be a blessing and a curse. On the one hand, foreign capital can be tapped to augment the scarce availability of domestic savings and as such, can be crucially drawn upon to improve existing levels of physical and human infrastructures. Large capital inflows and the attendant rise in domestic currencies, however, can create macroeconomic problems and issues in an economy especially when these flows come in droves and are volatile. In particular, substantial capital inflows cause domestic credit to expand and speculative activities to swell, which can lead to inflated values in asset prices and create lingering risks in the balance sheets of households, banks and corporations. Once the tides turn, sudden stops or drastic reversals in these flows can lead to the bursting of asset bubbles, investment and output collapse and, ultimately, to a very costly recession, if not, a widespread depression. Cognizant of these concerns, SEACEN conducted two signature research projects which aimed to identify and debate issues surrounding capital inflows and exchange rate appreciations as well as to explore possible alternative measures in managing capital inflows and exchange rate appreciations
|This book is provided by South East Asian Central Banks (SEACEN) Research and Training Centre in its series Research Studies with number rp87 and published in 2012.|
|Contact details of provider:|| Postal: Level 5, Sasana Kijang, Bank Negara Malaysia, 2 Jalan Dato? Onn, 50480 Kuala Lumpur|
Phone: 603-9195 1888
Fax: 603-9195 1801
Web page: http://edirc.repec.org/data/seacemy.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guy Debelle & Michael Plumb, 2006. "The Evolution of Exchange Rate Policy and Capital Controls in Australia," Asian Economic Papers, MIT Press, vol. 5(2), pages 7-29, June.
- Meredith Beechey & Nargis Bharucha & Adam Cagliarini & David Gruen & Christopher Thompson, 2000. "A Small Model of the Australian Macroeconomy," RBA Research Discussion Papers rdp2000-05, Reserve Bank of Australia.
- Guy Debelle & Jacob Gyntelberg & Michael Plumb, 2006. "Forward currency markets in Asia: lessons from the Australian experience," BIS Quarterly Review, Bank for International Settlements, September.
- Ricardo J Caballero & Kevin Cowan & Jonathan Kearns, 2004.
"Fear of Sudden Stops: Lessons from Australia and Chile,"
RBA Research Discussion Papers
rdp2004-03, Reserve Bank of Australia.
- Ricardo Caballero & Kevin Cowan & Jonathan Kearns, 2005. "Fear of Sudden Stops: Lessons From Australia and Chile," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 8(4), pages 313-354.
- Jonathan Kearns & Ricardo J. Caballero & Kevin Cowan, 2004. "Fear of Sudden Stops: lessons from Australia and Chile," Econometric Society 2004 Latin American Meetings 185, Econometric Society.
- Ricardo Caballero & Kevin Cowan & Jonathan Kearns, 2004. "Fear of Sudden Stops: Lessons from Australia and Chile," NBER Working Papers 10519, National Bureau of Economic Research, Inc.
- Ricardo J. Caballero & Kevin Cowan & Jonathan Kearns, 2005. "Fear of Sudden Stops: Lessons from Australia and Chile," Research Department Publications 4363, Inter-American Development Bank, Research Department.
- Guillermo A. Calvo & Carmen M. Reinhart, 2002.
"Fear of Floating,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 117(2), pages 379-408.
- Mathias Hoffmann, 2007.
"Fixed versus Flexible Exchange Rates: Evidence from Developing Countries,"
London School of Economics and Political Science, vol. 74(295), pages 425-449, 08.
- Hoffmann, Mathias, 2003. "Fixed versus Flexible Exchange Rates: Evidence from Developing Countries," Royal Economic Society Annual Conference 2003 109, Royal Economic Society.
- Hoffmann, Mathias, 2005. "Fixed versus flexible exchange rates: Evidence from developing countries," CFR Working Papers 05-03, University of Cologne, Centre for Financial Research (CFR).
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004.
"The Modern History of Exchange Rate Arrangements: A Reinterpretation,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 119(1), pages 1-48.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
- Arteta, Carlos & Eichengreen, Barry & Wyplosz, Charles, 2001.
"When Does Capital Account Liberalization Help More Than it Hurts?,"
CEPR Discussion Papers
2910, C.E.P.R. Discussion Papers.
- Carlos Arteta & Barry Eichengreen & Charles Wyplosz, 2001. "When Does Capital Account Liberalization Help More than It Hurts?," NBER Working Papers 8414, National Bureau of Economic Research, Inc.
- Todd E. Clark & Kenneth D. West, 2004.
"Using out-of-sample mean squared prediction errors to test the Martingale difference hypothesis,"
Research Working Paper
RWP 04-03, Federal Reserve Bank of Kansas City.
- Clark, Todd E. & West, Kenneth D., 2006. "Using out-of-sample mean squared prediction errors to test the martingale difference hypothesis," Journal of Econometrics, Elsevier, vol. 135(1-2), pages 155-186.
- Beck, Thorstein & Lundberg, Mattias & Majnoni, Giovanni, 2001.
"Financial intermediary development and growth volatility : do intermediaries dampen or magnify shocks?,"
Policy Research Working Paper Series
2707, The World Bank.
- Beck, Thorsten & Lundberg, Mattias & Majnoni, Giovanni, 2006. "Financial intermediary development and growth volatility: Do intermediaries dampen or magnify shocks?," Journal of International Money and Finance, Elsevier, vol. 25(7), pages 1146-1167, November.
- Dan Andrews & Daniel Rees, 2009. "Macroeconomic Volatility and Terms of Trade Shocks," RBA Research Discussion Papers rdp2009-05, Reserve Bank of Australia.
- Barry Eichengreen & Ricardo Hausmann, 1999.
"Exchange rates and financial fragility,"
Proceedings - Economic Policy Symposium - Jackson Hole,
Federal Reserve Bank of Kansas City, pages 329-368.
- Kenneth S. Rogoff & Vania Stavrakeva, 2008. "The Continuing Puzzle of Short Horizon Exchange Rate Forecasting," NBER Working Papers 14071, National Bureau of Economic Research, Inc.
- Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
- N/A, 2011. "Reform of the International Monetary System," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 3(2), pages 185-193, May.
When requesting a correction, please mention this item's handle: RePEc:sea:rstudy:rp87. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Yunyee)
If references are entirely missing, you can add them using this form.