ERI Discussion Paper Series No.86
Sterilization and the Capital Inflow Problem in East Asia1987-97

August 1999
Shinji Takagi
(Osaka University)
Taro Esaka
(Osaka University)


During the capital inflow episode of 1987-97,the monetary authorities of East Asia (i.e.,Indonesia,Korea,Malaysia,the Philippines and Thailand)took various measure to sterilize the expansionary effect of reserve inflows on the growth of monetary aggregates. Econometric tests based on quarterly data suggest that the set of various sterilization measures pursued were effective in limiting the growth of narrow and broad money. This may have promoted additional capital inflows by keeping the level of domestic interest rates high, or caused disintermediation and expanded the volume of assets in the poorly supervised nonbank financial sector. In either case, the potential risk of capital inflows in East Asia was likely magnified by the active policy of sterilization.

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  2. Abstract
  3. page1
    1. Introduction
  4. page4
    2. An Overview Background to the Stagnation of Business Fixed Investment
  5. page6
    3. Policy Responses to the Capital Inflows
  6. page9
    4. Estimation the Effectiveness of Sterlization
  7. page15
    5. Conclusion
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