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The Effect of Currency Policy on Portfolio Investments in East Asia Countries

Yana Valeryevna Dyomina ()
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Yana Valeryevna Dyomina: Economic Research Institute FEB RAS

Spatial Economics=Prostranstvennaya Ekonomika, 2018, issue 2, 74-91

Abstract: Currency and stock markets of East Asia significantly differ from one another in levels of development and regulation. The markets of Japan, Singapore and Hong Kong (the most developed and ‘volumetric’) are defined by the least number of restrictions applies (2–4 out of 13 defined by the IMF). At the same time, 8 countries of East Asia (China, Malaysia, Myanmar, Vietnam, the Philippines, Indonesia, Laos and Thailand) control almost all capital-moving operations (11–12 restrictions). Despite many offers of monetary cooperation and coordination of currency policy, countries of East Asia do not have a solidarity in choosing the regime of exchange rate. According to the IMF, 9 countries out of 14 use fixed exchange rates. The East Asia countries are also characterized by frequent shifts in exchange-rate regimes: in 2000–2016 only Brunei, Japan and the Republic of Korea did not change a regime. The results of regression analysis of panel data show that, despite the lack of institutional framework of coordinated monetary policy in the region, there is an actual binding of nominal rates of East Asian currencies to US dollar. There is a strong relation between such monetary policy in the region as a whole, and not every country separately, and net export of portfolio investments out of East Asia countries.

Keywords: Portfolio investments; balance of payments; monetary policy; currency exchange rate; currency integration; Mundell-Fleming model; ASEAN; ASEAN+3; East Asia (search for similar items in EconPapers)
JEL-codes: F21 F31 F38 F42 (search for similar items in EconPapers)
Date: 2018
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