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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
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    References listed on IDEAS

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    5. Lim, Jamus Jerome & Mohapatra, Sanket & Stocker, Marc, 2014. "Tinker, taper, QE, bye ? the effect of quantitative easing on financial flows to developing countries," Policy Research Working Paper Series 6820, The World Bank.
    6. Cho, Dongchul & Rhee, Changyong, 2013. "Effects of Quantitative Easing on Asia: Capital Flows and Financial Markets," ADB Economics Working Paper Series 350, Asian Development Bank.
    7. 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.
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    Citations

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    Cited by:

    1. Park, Cyn-Young & Shin, Kwanho, 2018. "Global Banking Network and Regional Financial Contagion," ADB Economics Working Paper Series 546, Asian Development Bank.
    2. 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.
    3. Donghyun Park & Kwanho Shin & Shu Tian, 2018. "Do Local Currency Bond Markets Enhance Financial Stability?," Working Papers id:12941, eSocialSciences.
    4. Shim, Ilhyock & Shin, Kwanho, 2021. "Financial stress in lender countries and capital outflows from emerging market economies," Journal of International Money and Finance, Elsevier, vol. 113(C).
    5. Stephanos Papadamou & Nikolaos A. Kyriazis & Panayiotis G. Tzeremes, 2019. "Spillover Effects of US QE and QE Tapering on African and Middle Eastern Stock Indices," JRFM, MDPI, vol. 12(2), pages 1-20, April.
    6. De,Supriyo & Mohapatra,Sanket & Ratha,Dilip K., 2020. "Sovereign Credit Ratings, Relative Risk Ratings, and Private Capital Flows," Policy Research Working Paper Series 9401, The World Bank.
    7. Zoë Venter, 2020. "The Interaction Between Conventional Monetary Policy and Financial Stability: Chile, Colombia, Japan, Portugal and the UK," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 521-554, September.
    8. 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.

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    More about this item

    Keywords

    Asia; capital flows; financial stability; global financial crisis; macroprudential measures; quantitative easing; tapering;
    All these keywords.

    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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