An empirical assessment of monetary policy responses to capital inflows in Asia before the financial crisis

SY Kwack - International Economic Journal, 2001 - Taylor & Francis
SY Kwack
International Economic Journal, 2001Taylor & Francis
This paper highlights monetary policy implemented by monetary authorities in response to a
surge of capital inflows in Asia during the period 1985–1996. It statistically assesses the
effectiveness of monetary policy responses. Regression results show that Asian countries as
a group took the operation of a high rate of sterilization and the foreign exchange market
intervention which yielded a small change in the exchange rate. Consequently, they
succeeded in keeping nominal exchange rates at desired levels and in limiting increases in …
This paper highlights monetary policy implemented by monetary authorities in response to a surge of capital inflows in Asia during the period 1985–1996. It statistically assesses the effectiveness of monetary policy responses. Regression results show that Asian countries as a group took the operation of a high rate of sterilization and the foreign exchange market intervention which yielded a small change in the exchange rate. Consequently, they succeeded in keeping nominal exchange rates at desired levels and in limiting increases in monetary growth, despite a surge in capital inflows. The adoption of floating exchange rates, it is concluded, could have avoided the occurrence of financial crisis in Asia. [F32, F41]
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