Studies in East Asian Economies: Capital Flows, Exchange Rates and Monetary Policy
This book includes three economic/econometric studies on four East Asian countries (Indonesia, Malaysia, Philippines and Thailand) and two studies on China. The four East Asian economies, designated at one time as OCyeconomic tigersOCO, provide important and interesting case studies on periods of very rapid growth with heavy capital inflows, followed by financial and economic crises. The three studies on these countries examine the impact of heavy capital inflows on growth, real exchange rates and the conduct of domestic monetary policy during the period 1970OCo96, which immediately preceded their financial crises of 1997OCo98. At a more general level, they shed light on the contributions that capital inflows make to small open economies and how these inflows impact on their exchange rates and monetary policies. The two studies on China examine the adequacy of capital flows to it and its monetary policies. In recent years, while China has been among the biggest recipients of capital inflows, our study on it finds that these inflows are still considerably short of the amounts that perfect capital flows would imply. Regarding China''s pursuit of monetary policy, our study is the first one to question whether interest rates or monetary aggregates are appropriate instruments for the control of the economy. Our finding is that its large informal sector and black money holdings make the use of monetary aggregates the more appropriate policy instrument. This finding contrasts with the usual one for financially developed economies that interest rate targeting and a Taylor rule provide the applicable monetary policy framework.
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analysis approach balance of payments capital flows capital mobility central bank changes Chapter China cointegrating consumption correlation current account developing countries domestic credit econometric Economic effect empirical equilibrium real exchange error-correction estimated exogenous export and import fixed exchange rate foreign assets foreign capital foreign exchange foreign investment four countries Granger causality growth rate import real exchange income indicate Indonesia inflation rate inflows interest rate internal real exchange Journal lagged ldky long-run long-term debt capital loss function MABP macroeconomic Malaysia monetary authorities monetary base monetary policy monetary policy instrument monetary policy rules money supply offset coefficient parameters percent Philippines Philippines and Thailand price index productivity rate for exports reaction function real exchange rate regression root tests saving and investment sector significant statistics Table target terms of trade tradable unit root unit root tests variables volatility World Bank