International monetary transmission in East Asia: Floaters, non-floaters, and capital controls

Soyoung Kim and Doo Yong Yang

Japan and the World Economy, 2012, vol. 24, issue 4, 305-316

Abstract: This paper analyzes the impacts of the United States (US) monetary shocks on East Asian countries using structural vector-autoregression (VAR) model. We find that the impacts of the US monetary shocks on East Asian domestic interest rates and exchange rates contradict conventional wisdom. The conventional exchange rate channel is unlikely to play much role in the transmission of the US monetary policy shocks to floaters in East Asian countries, excluding Japan. In these countries, the domestic interest rates respond strongly to the US interest rate changes, by giving up monetary autonomy, probably because of fear of floating. However, the domestic interest rate does not respond much in countries with fixed exchange rate regimes and capital account restrictions, such as China and Malaysia. This may suggest that the countries with fixed exchange rate regimes enjoy a higher degree of monetary autonomy, most likely with the help of capital account restrictions.

Keywords: Structural VAR; Monetary shocks; Interest rate; Exchange rate; Exchange rate regime (search for similar items in EconPapers)
JEL-codes: F31 F33 F42 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:24:y:2012:i:4:p:305-316

DOI: 10.1016/j.japwor.2012.05.003

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