Foreign exchange reserves, exchange rate regimes, and monetary policy: issues in Asia
In: ERD working paper series 61
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In: ERD working paper series 61
In: IMES discussion paper series 2005,15
In: The journal of development studies, Band 48, Heft 5, S. 673-685
ISSN: 1743-9140
In: The journal of development studies: JDS, Band 48, Heft 5, S. 673-686
ISSN: 0022-0388
In: Asian Development Bank Economics Working Paper Series No. 178
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Working paper
This paper seeks to outline issues arising from rapid foreign exchange reserve accumulations in Asia. Greater attention is paid to People's Republic of China and India for the significance of the accumulation fed by surges in capital inflows. The paper finds that sterilization interventions by the two economies appear to be effective in curbing credit growth, but the impacts appear limited and shortlived. In this regard, adjustments of exchange rate policies are called for to have more freedom in policy options, though incentives to live with exchange rate fluctuations are still limited, and in fact the currencies have been managed more tightly than before. Therefore, the paper argues that, while maintaining the current exchange rate practices with capital controls in place, domestic reforms should be pushed further to be ready for capital account convertibility and more exchange rate flexibility in the long term.
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In: Asian Development Review, Band 28, Heft 1, S. 119-156
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In: Asian Development Bank Economics Working Paper Series No. 231
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In: NBER Working Paper No. w22412
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In: Asian Development Bank Economics Working Paper Series No. 381
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In: Asian Development Bank Economics Working Paper Series No. 181
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In: Asian Development Bank Economics Working Paper Series No. 487
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Working paper
In this paper, we find that home bias is still present in all economies and regions, especially in the case of short-term debt securities, but that there are substantial variations among economies and regions in the strength of home bias, with the Eurozone economies, the US, and developing Asia showing relatively weak home bias and advanced Asia, especially Japan, showing relatively strong home bias. We then examine trends over time in foreign holdings of debt securities and find that capital has been flowing from the US and the Eurozone economies to both advanced Asia (especially Japan) and developing Asia and that foreign holdings of debt securities have been increasing in advanced as well as developing Asia but for different reasons. The main reason in the case of advanced Asia (especially Japan) appears to be higher riskadjusted returns, whereas the main reason in the case of developing Asia appears to be the growth of debt securities markets combined with relatively weak home bias and (in the case of short-term securities) lower exchange rate volatility. Finally, we find that since the Global Financial Crisis, foreign holdings of debt securities have declined (i.e., that home bias has strengthened) in all economies and regions except developing Asia, where they have increased (except for a temporary decline in 2008) but where their share is still much lower than the optimal share warranted by the capital asset pricing market model.
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