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Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries

Author

Listed:
  • Park, Donghyun

    () (Asian Development Bank)

  • Ramayandi, Arief

    () (Asian Development Bank)

  • Shin, Kwanho

    () (Korea University)

Abstract

A potentially important side effect of quantitative easing(QE) by the United States (US) Federal Reserve System (the Fed) is the expansion of capital flows into developing countries. As a result, there is widespread concern that QE tapering may trigger financial instability in those countries. The central objective of our paper is to empirically investigate this important issue by (1)examining the effect of QE on capital flows into developing Asia, and (2) analyzing the different factors which influence the effect of QE tapering on financial instability in order to identify the most significant factors. We find that QE1 had a bigger impact on capital flows than QE2 and QE3, and credit expansion and capital inflows magnified the effect of QE tapering on financial instability. While there is no evidence that macroprudential policies directly reduced the effect of QE tapering, they can nevertheless be useful preemptive measures.

Suggested Citation

  • Park, Donghyun & Ramayandi, Arief & Shin, Kwanho, 2014. "Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries," ADB Economics Working Paper Series 409, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0409
    as

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    File URL: http://www.adb.org/sites/default/files/pub/2014/ewp-409.pdf
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    References listed on IDEAS

    as
    1. Kristin Forbes & Marcel Fratzscher & Roland Straub, 2013. "Capital Controls and Macroprudential Measures: What Are They Good For?," Discussion Papers of DIW Berlin 1343, DIW Berlin, German Institute for Economic Research.
    2. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2007. "The external wealth of nations mark II: Revised and extended estimates of foreign assets and liabilities, 1970-2004," Journal of International Economics, Elsevier, vol. 73(2), pages 223-250, November.
    3. Valentina Bruno & Hyun Song Shin, 2013. "Assessing Macroprudential Policies: Case of Korea," NBER Working Papers 19084, National Bureau of Economic Research, Inc.
    4. Qianying Chen & Andrew Filardo & Dong He & Feng Zhu, 2012. "International spillovers of central bank balance sheet policies," BIS Papers chapters,in: Bank for International Settlements (ed.), Are central bank balance sheets in Asia too large?, volume 66, pages 220-264 Bank for International Settlements.
    5. repec:pri:cepsud:237c%20shin is not listed on IDEAS
    6. Jeffrey Moore & Sunwoo Nam & Myeongguk Suh & Alexander Tepper, 2013. "Estimating the impacts of U.S. LSAPs on emerging market economies’ local currency bond markets," Staff Reports 595, Federal Reserve Bank of New York.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Gemma B. Estrada & Donghyun Park & Arief Ramayandi, 2016. "Taper Tantrum and Emerging Equity Market Slumps," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(5), pages 1060-1071, May.
    2. Lucian Liviu ALBU & Radu LUPU & Adrian Cantemir CĂLIN, 2016. "Quantitative Easing, Tapering And Stock Market Indices," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(3), pages 5-23.

    More about this item

    Keywords

    Asia; capital flows; financial stability; global financial crisis; macroprudential measures; quantitative easing; tapering;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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