Monetary autonomy in selected Asian economies: The role of international reserves

Hiroyuki Taguchi (), Geethanjali Nataraj () and Pravakar Sahoo

Journal of Asian Economics, 2011, vol. 22, issue 6, 471-482

Abstract: With the increased financial integration of Asian countries, monetary policy takes on the additional role of maintaining the stability of the financial system along with the traditional objectives of promoting growth and employment with price stability. Given the importance and relevance of monetary policy in Asian countries, we examine monetary autonomy and its interaction with financial integration, currency regimes and international reserves for the past two decades in the following Asian countries: Thailand, Korea, Indonesia, the Philippines, and India. The empirical analysis reveals two significant and interesting findings that have policy implications. First, Thailand, Korea and Indonesia, countries that have moved towards a floating currency regime, experienced simultaneous declines in the sensitivity of their interest rates (thereby increasing monetary autonomy), while India continues to increase the sensitivity of its interest rates with a pegged exchange rate and increased financial integration. Second, in all of the studied economies, the accumulation of international reserves has contributed, to some extent, to the retention of monetary autonomy in terms of preventing the sensitivity of the interest rates from rising. We speculate that the accumulation of reserves plays the role of an anchor for monetary autonomy in emerging market economies facing a “fear of floating”.

Keywords: Asian emerging market economies; Monetary autonomy; Financial integration; Currency regime; Foreign reserves; Fear of floating (search for similar items in EconPapers)
JEL-codes: E52 F33 F41 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (2)

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Working Paper: Monetary Autonomy in Select Asian Economies: Role of International Reserves (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:22:y:2011:i:6:p:471-482

DOI: 10.1016/j.asieco.2011.08.008

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