Abstract
Quantitative easing (QE) conducted by the US Fed during 2009 Q1 to 2013 Q2 expanded capital flows into emerging economies. The possibility of tapering to reduce QE caused the taper tantrum in 2013 that was characterized by sudden capital reversals and drastic exchange rate depreciation in a subset of developing countries. In this paper we investigated factors that drove capital reversals and drastic exchange rate depreciation in the developing countries. We find that actual capital inflows during the QE periods were most responsible for capital reversals thereafter. However, we do not find evidence that capital flow reversals actually contributed to the drastic exchange rate depreciation during the taper tantrum or lowered real GDP growth afterwards. Consistent with previous studies Our findings suggest that pre-emptive measures to prevent excessive capital inflows are crucial to promote the resilience of the economy. The recent experience of Korea that introduced a series of macroprudential measures shows supporting evidence for this view. Abbreviations: EG: Eichengreen and Gupta (2015); IFS: International Financial Statistics; PRS: Park, Ramayandi, and Shin (2016); US Fed: U.S. Federal Reserve System.
| Original language | English |
|---|---|
| Pages (from-to) | 226-243 |
| Number of pages | 18 |
| Journal | China Economic Journal |
| Volume | 10 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2017 May 4 |
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Keywords
- capital flow
- developing countries
- financial stability
- global financial crisis
- macroprudential measures
- Quantitative easing
- taper tantrum
- tapering
ASJC Scopus subject areas
- Cultural Studies
- Sociology and Political Science
- Economics, Econometrics and Finance(all)
Cite this
Capital flow reversals during the taper tantrum in 2013 : causes and consequences. / Shin, Kwanho.
In: China Economic Journal, Vol. 10, No. 2, 04.05.2017, p. 226-243.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Capital flow reversals during the taper tantrum in 2013
T2 - causes and consequences
AU - Shin, Kwanho
PY - 2017/5/4
Y1 - 2017/5/4
N2 - Quantitative easing (QE) conducted by the US Fed during 2009 Q1 to 2013 Q2 expanded capital flows into emerging economies. The possibility of tapering to reduce QE caused the taper tantrum in 2013 that was characterized by sudden capital reversals and drastic exchange rate depreciation in a subset of developing countries. In this paper we investigated factors that drove capital reversals and drastic exchange rate depreciation in the developing countries. We find that actual capital inflows during the QE periods were most responsible for capital reversals thereafter. However, we do not find evidence that capital flow reversals actually contributed to the drastic exchange rate depreciation during the taper tantrum or lowered real GDP growth afterwards. Consistent with previous studies Our findings suggest that pre-emptive measures to prevent excessive capital inflows are crucial to promote the resilience of the economy. The recent experience of Korea that introduced a series of macroprudential measures shows supporting evidence for this view. Abbreviations: EG: Eichengreen and Gupta (2015); IFS: International Financial Statistics; PRS: Park, Ramayandi, and Shin (2016); US Fed: U.S. Federal Reserve System.
AB - Quantitative easing (QE) conducted by the US Fed during 2009 Q1 to 2013 Q2 expanded capital flows into emerging economies. The possibility of tapering to reduce QE caused the taper tantrum in 2013 that was characterized by sudden capital reversals and drastic exchange rate depreciation in a subset of developing countries. In this paper we investigated factors that drove capital reversals and drastic exchange rate depreciation in the developing countries. We find that actual capital inflows during the QE periods were most responsible for capital reversals thereafter. However, we do not find evidence that capital flow reversals actually contributed to the drastic exchange rate depreciation during the taper tantrum or lowered real GDP growth afterwards. Consistent with previous studies Our findings suggest that pre-emptive measures to prevent excessive capital inflows are crucial to promote the resilience of the economy. The recent experience of Korea that introduced a series of macroprudential measures shows supporting evidence for this view. Abbreviations: EG: Eichengreen and Gupta (2015); IFS: International Financial Statistics; PRS: Park, Ramayandi, and Shin (2016); US Fed: U.S. Federal Reserve System.
KW - capital flow
KW - developing countries
KW - financial stability
KW - global financial crisis
KW - macroprudential measures
KW - Quantitative easing
KW - taper tantrum
KW - tapering
UR - http://www.scopus.com/inward/record.url?scp=85018303705&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85018303705&partnerID=8YFLogxK
U2 - 10.1080/17538963.2017.1319634
DO - 10.1080/17538963.2017.1319634
M3 - Article
AN - SCOPUS:85018303705
VL - 10
SP - 226
EP - 243
JO - China Economic Journal
JF - China Economic Journal
SN - 1753-8963
IS - 2
ER -