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Prolonged reserves accumulation, credit booms, asset prices and monetary policy in Asia

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  • Andrew J Filardo
  • Pierre L Siklos

Abstract

This paper examines past evidence of prolonged periods of foreign exchange reserves accumulation in the Asia-Pacific region. One empirical challenge is to identify periods of reserve accumulation that are sufficiently large and persistent to be categorised as prolonged. Several proxies for prolonged episodes are considered, including a newly proposed one based on a factor model. We then identify the key macrofinancial determinants of prolonged reserve accumulation. Two broad conclusions emerge from the stylised facts and the econometric evidence. First, the best protection against costly reserves accumulation is a more flexible exchange rate. Second, the necessity of accumulating reserves as a bulwark against goods price inflation is misplaced. Instead, there is a strong link between asset price movements and the likelihood of accumulating foreign exchange reserves that are costly. Policy implications are also drawn.

Suggested Citation

  • Andrew J Filardo & Pierre L Siklos, 2015. "Prolonged reserves accumulation, credit booms, asset prices and monetary policy in Asia," BIS Working Papers 500, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:500
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    Cited by:

    1. Yeonjeong Lee & Seong-Min Yoon, 2020. "Relationship between International Reserves and FX Rate Movements," Sustainability, MDPI, vol. 12(17), pages 1-24, August.
    2. Alberola, Enrique & Erce, Aitor & Serena, José Maria, 2016. "International reserves and gross capital flows dynamics," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 151-171.
    3. Lombardi, Domenico & Siklos, Pierre L. & Xie, Xiangyou, 2018. "Monetary policy transmission in systemically important economies and China’s impact," Journal of Asian Economics, Elsevier, vol. 59(C), pages 61-79.
    4. Filardo, Andrew & Genberg, Hans & Hofmann, Boris, 2016. "Monetary analysis and the global financial cycle: An Asian central bank perspective," Journal of Asian Economics, Elsevier, vol. 46(C), pages 1-16.
    5. Siklos, Pierre L., 2018. "Boom-and-bust cycles in emerging markets: How important is the exchange rate?," Journal of Macroeconomics, Elsevier, vol. 56(C), pages 172-187.

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    More about this item

    Keywords

    foreign exchange reserves accumulation; monetary and financial stability;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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