Capital flow reversals during the taper tantrum in 2013: causes and consequences

Research output: Contribution to journalArticle

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 languageEnglish
Pages (from-to)226-243
Number of pages18
JournalChina Economic Journal
Volume10
Issue number2
DOIs
Publication statusPublished - 2017 May 4

Fingerprint

capital movement
cause
developing country
economy
Korea
resilience
evidence
statistics
Capital flows
Reversal
Depreciation
Exchange rates
Quantitative easing
experience
Developing countries
Capital inflows

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 journalArticle

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