An Empirical Assessment Of Monetary Policy Responses To Capital Inflows In Asia Before The Financial Crisis

Sung Yeung Kwack

International Economic Journal, 2001, vol. 15, issue 1, 95-113

Abstract: 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]

Date: 2001
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DOI: 10.1080/10168730100000005

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