(RP87) Exchange Rate Appreciation, Capital Flows and Excess Liquidity: Adjustment and Effectiveness of Policy Responses by Victor Pontines and Reza Siregar


Publish Date : June 2012Project Leader / Author : Victor Pontines and Reza SiregarISBN : 978-983-9478-17-4Pages : 466Total Downloads : 1222


The 2008-2009 Global Financial Crisis (GFC) brought the global economy to the brink of a global depression not seen since the Great Depression of the 1930’s. While several of the European peripheral countries remain deeply-mired in dealing with banking and sovereign debt problems, the Asian region is fast relegating the GFC as a thing of the past with its swift and immediate recovery from the recent crisis. Most recent indicators of economic performance by individual economies in the region show that indeed, it is the fastest growing region in the world at the moment. Such dynamism in the region, however, also comes with its own set of pressing and immediate challenges. Buoyant growth in the region, spurred to a great extent by the ultra-low policy rates in the region as well as by the series of quantitative easing in the advanced economies to revive their anemic growth prospects, has led foreign capital returning to the Asian region.

 
With memories of the 1997-1998 Asian financial crisis still firmly etched in the memories of policymakers in the region, they know fully-well that capital inflows can both be a blessing and a curse. On the one hand, foreign capital can be tapped to augment the scarce availability of domestic savings and as such, can be crucially drawn upon to improve existing levels of physical and human infrastructures. Large capital inflows and the attendant rise in domestic currencies, however, can create macroeconomic problems and issues in an economy especially when these flows come in droves and are volatile. In particular, substantial capital inflows cause domestic credit to expand and speculative activities to swell, which can lead to inflated values in asset prices and create lingering risks in the balance sheets of households, banks and corporations. Once the tides turn, sudden stops or drastic reversals in these flows can lead to the bursting of asset bubbles, investment and output collapse and, ultimately, to a very costly recession, if not, a widespread depression. 
 
Cognizant of these concerns, SEACEN conducted two signature research projects which aimed to identify and debate issues surrounding capital inflows and exchange rate appreciations as well as to explore possible alternative measures in managing capital inflows and exchange rate appreciations

Chapter 1: 
CAPITAL FLOWS: WHERE DO WE STAND? 
By Stefan Gerlach and Peter Tillmann

Chapter 2: 
EXCHANGE RATE-SMOOTHING POLICIES: A REASSESSMENT 
By Eduardo Levy Yeyati

Chapter 3:
THE TRILEMMA CHALLENGE FOR SEACEN MEMBER ECONOMIES: TESTING THE TRILEMMA HYPOTHESIS
By Hiro Ito and Masahiro Kawai

Chapter 4
MONETARY REGIMES AND CAPITAL ACCOUNT VOLATILITY BEFORE AND AFTER THE GLOBAL FINANCIAL CRISIS
By Mark M. Spiegel

Chapter 5: 
EPISODES OF LARGE EXCHANGE RATE APPRECIATIONS AND RESERVES ACCUMULATIONS IN SELECTED ASIAN ECONOMIES: IS FEAR OF APPRECIATION JUSTIFIED? 
By Victor Pontines and Reza Siregar

Chapter 6: 
RAPID CREDIT GROWTH AND INTERNATIONAL CREDIT: CHALLENGES TO ASIA 
By Stefan Avdjiev, Robert McCauley and Patrick McGuire

Chapter 7: 
HOW SHOULD WE BANK WITH FOREIGNERS? AN EMPIRICAL ASSESSMENT OF LENDING BEHAVIOUR OF INTERNATIONAL BANKS TO SIX EAST ASIAN ECONOMIES 
By Victor Pontines and Reza Y. Siregar

Chapter 8: 
POST-GLOBAL CRISIS CAPITAL INFLOWS TO INDONESIA: CHALLENGES AND POLICY RESPONSES 
By Darsono and Juda Agung

Chapter 9: 
CIP AND INTERNATIONAL CAPITAL MOVEMENTS IN A DSGE MODEL WITH FINANCIAL FRICTIONS 
By Junhan Kim

Chapter 10: 
MANAGING SHORT-TERM CAPITAL FLOWS – DO WE HAVE THE RIGHT FRAMEWORK? DRAWING LESSONS FROM MALAYSIA’S EXPERIENCE 
By Ahmad Razi, Ahmad Mohd. Ripin and Mohd. Nozlan

Chapter 11: 
GOING WITH REMITTANCES: THE CASE OF THE PHILIPPINES 
By Veronica B. Bayangos

Chapter 12: 
AUSTRALIA’S EXPERIENCE WITH A FLOATING EXCHANGE RATE 
By Lynne Cockerell, Chamath De Silva and Chris Potter

 

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