How Did the Bank of Thailand Respond to Capital Inflows before a Crisis? Sterilization and Base Money in the 1990's

Masahiro Inoguchi ()
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Masahiro Inoguchi: Graduate School of Economics, Hitotsubashi University, Japan

The Singapore Economic Review (SER), 2003, vol. 48, issue 01, 39-60

Abstract: This paper explores how the Bank of Thailand (BOT) responded to capital inflows through sterilization and how it changed base money before the Asian crisis. There has been no general consensus on this subject and many previous studies have not considered the definition of sterilization. In this paper, sterilization is defined as the sale of domestic assets by a central bank in order to offset an increase in base money due to the purchase of foreign assets. When the BOT does not sell domestic assets but instead changes the value of accounts that are not counted in base money on the liabilities side of the balance sheet, it can keep base money fixed without sterilization. The results of this analysis are that the BOT kept base money constant after 1994 by means of sterilization and the manipulation of liabilities not counted in base money, while prior to 1994, there was incomplete sterilization and base money was not fixed.

Keywords: Capital inflow; Dollar peg system; Bank of Thailand; Sterilization; Base money (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1142/S0217590803000621

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