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

30 Pages Posted: 17 Oct 2014

See all articles by Donghyun Park

Donghyun Park

Asian Development Bank - Economic Research

Arief Ramayandi

Asian Development Bank - Economic Research

Kwanho Shin

Korea University

Date Written: September 2014

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

JEL Classification: F32, F44, G01

Suggested Citation

Park, Donghyun and Ramayandi, Arief and Shin, Kwanho, Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries (September 2014). Asian Development Bank Economics Working Paper Series No. 409, Available at SSRN: https://ssrn.com/abstract=2511117 or http://dx.doi.org/10.2139/ssrn.2511117

Donghyun Park

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Arief Ramayandi (Contact Author)

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Kwanho Shin

Korea University ( email )

1 Anam-dong 5 ka
Sunbuk-Ku, Department of Economics
Seoul 136-701
Korea
82-2-3290-2220 (Phone)
82-2-3290-2719 (Fax)

HOME PAGE: econ.korea.ac.kr/~khshin

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