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The Impact of Capital Inflows on Emerging East Asian Economies: Is Too Much Money Chasing Too Little Good?

  • Kim, Soyoung

    ()

    (Korea University)

  • Yang, Doo Yong

    ()

    (Korea Institute for International Economic Policy)

In recent years, emerging East Asian economies have experienced large capital inflows-especially a surge in portfolio inflows-and an appreciation of asset prices such as equities, land, and both nominal and real exchange rates. The paper reviews why a surge in capital inflows can increase asset prices, and then empirically investigates the effects by employing a panel vector autoregression (VAR) model. The empirical results suggest that capital inflows have indeed contributed to the asset price appreciation in this region, although capital inflow shocks explain a relatively small part of asset price fluctuations. How to manage these capital inflows is also discussed.

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Paper provided by Asian Development Bank in its series Working Papers on Regional Economic Integration with number 15.

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Length: 34 pages
Date of creation: 01 May 2008
Date of revision:
Handle: RePEc:ris:adbrei:0015
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  1. Geert Bekaert & Campbell R. Harvey & Robin L. Lumsdaine, 1999. "The Dynamics of Emerging Market Equity Flows," NBER Working Papers 7219, National Bureau of Economic Research, Inc.
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  7. Kim, Soyoung, 1999. "Do monetary policy shocks matter in the G-7 countries? Using common identifying assumptions about monetary policy across countries," Journal of International Economics, Elsevier, vol. 48(2), pages 387-412, August.
  8. Andrew J. Filardo, 2001. "Should monetary policy respond to asset price bubbles? : some experimental results," Research Working Paper RWP 01-04, Federal Reserve Bank of Kansas City.
  9. Sims, Christopher A & Uhlig, Harald, 1991. "Understanding Unit Rooters: A Helicopter Tour," Econometrica, Econometric Society, vol. 59(6), pages 1591-99, November.
  10. Nicolas Magud & Carmen M. Reinhart, 2007. "Capital Controls: An Evaluation," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices and Consequences, pages 645-674 National Bureau of Economic Research, Inc.
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  17. Kim, Soyoung & Roubini, Nouriel, 2000. "Exchange rate anomalies in the industrial countries: A solution with a structural VAR approach," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 561-586, June.
  18. Gilchrist, Simon & Leahy, John V., 2002. "Monetary policy and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 75-97, January.
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