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Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries

Donghyun Park (), Arief Ramayandi () and Kwanho Shin ()

No 409, ADB Economics Working Paper Series from Asian Development Bank

Abstract: A potentially important side effect of quantitative easing(QE) by the United States (US) Federal Reserve System (the Fed) is the expansion of capital flows into developing countries. As a result, there is widespread concern that QE tapering may trigger financial instability in those countries. The central objective of our paper is to empirically investigate this important issue by (1)examining the effect of QE on capital flows into developing Asia, and (2) analyzing the different factors which influence the effect of QE tapering on financial instability in order to identify the most significant factors. We find that QE1 had a bigger impact on capital flows than QE2 and QE3, and credit expansion and capital inflows magnified the effect of QE tapering on financial instability. While there is no evidence that macroprudential policies directly reduced the effect of QE tapering, they can nevertheless be useful preemptive measures.

Keywords: Asia; capital flows; financial stability; global financial crisis; macroprudential measures; quantitative easing; tapering (search for similar items in EconPapers)
JEL-codes: F32 F44 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mon, nep-opm and nep-sea
Date: 2014-09-01
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