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Sterilization, Monetary Policy, and Global Financial Integration

  • Joshua Aizenman
  • Reuven Glick

This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments inflows, across countries and over time. We find that the extent of sterilization of foreign reserve inflows has risen in recent years to varying degrees in Asia as well as in Latin America, consistent with greater concerns about the potential inflationary impact of reserve inflows. We also find that sterilization depends on the composition of balance of payments inflows.

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File URL: http://www.nber.org/papers/w13902.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13902.

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Date of creation: Mar 2008
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Publication status: published as Joshua Aizenman & Reuven Glick, 2009. "Sterilization, Monetary Policy, and Global Financial Integration," Review of International Economics, Blackwell Publishing, vol. 17(4), pages 777-801, 09.
Handle: RePEc:nbr:nberwo:13902
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  1. Maurice Obstfeld & Jay C.Shambaugh & Alan M.Taylor, 2003. "The Trilemma in History:Tradeoffs among Exchange Rates, Monetary Policies,and Capital Mobility," DNB Staff Reports (discontinued) 94, Netherlands Central Bank.
  2. Joshua Aizenman & Reuven Glick, 2008. "Pegged Exchange Rate Regimes-A Trap?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 817-835, 06.
  3. Tony Cavoli & Ramkishen S. Rajan, 2005. "The Capital Inflows Problem in Selected Asian Economies in the 1990s Revisited: The Role of Monetary Sterilization," SCAPE Policy Research Working Paper Series 0518, National University of Singapore, Department of Economics, SCAPE.
  4. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  5. M S Mohanty & Philip Turner, 2006. "Foreign exchange reserve accumulation in emerging markets: what are the domestic implications?," BIS Quarterly Review, Bank for International Settlements, September.
  6. Glick, Reuven & Hutchison, Michael M., 2000. "Foreign reserve and money dynamics with asset portfolio adjustment: international evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(3-4), pages 229-247, December.
  7. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," NBER Working Papers 5191, National Bureau of Economic Research, Inc.
  8. Eichengreen, Barry, 1999. "Kicking the Habit: Moving from Pegged Rates to Greater Exchange Rate Flexibility," Economic Journal, Royal Economic Society, vol. 109(454), pages C1-14, March.
  9. Sebastian Edwards & Eduardo Levy Yeyati, 2003. "Flexible Exchange Rates as Shock Absorbers," NBER Working Papers 9867, National Bureau of Economic Research, Inc.
  10. Joshua Aizenman & Jaewoo Lee, 2006. "Financial Versus Monetary Mercantilism-Long-run View of Large International Reserves Hoarding," NBER Working Papers 12718, National Bureau of Economic Research, Inc.
  11. Eduardo Levy Yeyati, 2006. "Liquidity Insurance in a Financially Dollarized Economy," NBER Working Papers 12345, National Bureau of Economic Research, Inc.
  12. 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.
  13. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
  14. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  15. Jaewoo Lee & Joshua Aizenman, 2006. "Financial Versus Monetary Mercantilism; Long-Run View of the Large International Reserves Hoarding," IMF Working Papers 06/280, International Monetary Fund.
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