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Asia Confronts the Impossible Trinity

  • Ila Patnaik

    (Asian Development Bank Institute)

  • Ajay Shah

In this paper, we examine capital account openness and exchange rate flexibility in 11 Asian economies. Asia has made slow progress in de jure capital account openness, but has made much more progress in de facto capital account openness. While there has been a gradual increase in exchange rate flexibility, most Asian economies continue to have largely inflexible exchange rates. This combination of advancing de facto capital account integration without greater exchange rate flexibility has led to procyclical monetary policy, when capital flows are procyclical. This paper emphasises the need for a consistent monetary policy framework.

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Paper provided by East Asian Bureau of Economic Research in its series Macroeconomics Working Papers with number 22814.

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Date of creation: Jan 2010
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Handle: RePEc:eab:macroe:22814
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