Sterilization in Economy
NBER WORKING PAPER SERIES
STERILIZATION, MONETARY POLICY, AND GLOBAL FINANCIAL INTEGRATION
Joshua Aizenman
Reuven Glick
Working Paper 13902 http://www.nber.org/papers/w13902 NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
March 2008
We thank Michael Hutchinson, Menzie Chinn, an anonymous referee, and participants at the Review of International Economics - Santa Cruz Center for International Economics conference on "Global
Liquidity," held at the University of California at Santa Cruz on April 11-12, 2008 for useful comments.
We also thank Michael Simmons and Andrew Cohn for research assistance. The views expressed below do not represent those of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System, or the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official
NBER publications.
© 2008 by Joshua Aizenman and Reuven Glick. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Sterilization, Monetary Policy, and Global Financial Integration
Joshua Aizenman and Reuven Glick
NBER Working Paper No. 13902
March 2008, September 2008
JEL No. F15,F21,F31
ABSTRACT
This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments inflows, across countries and over time. We find that the extent of sterilization of foreign reserve inflows has risen in recent years to varying degrees in Asia as well as in Latin America, consistent with
STERILIZATION, MONETARY POLICY, AND GLOBAL FINANCIAL INTEGRATION
Joshua Aizenman
Reuven Glick
Working Paper 13902 http://www.nber.org/papers/w13902 NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
March 2008
We thank Michael Hutchinson, Menzie Chinn, an anonymous referee, and participants at the Review of International Economics - Santa Cruz Center for International Economics conference on "Global
Liquidity," held at the University of California at Santa Cruz on April 11-12, 2008 for useful comments.
We also thank Michael Simmons and Andrew Cohn for research assistance. The views expressed below do not represent those of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System, or the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official
NBER publications.
© 2008 by Joshua Aizenman and Reuven Glick. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.
Sterilization, Monetary Policy, and Global Financial Integration
Joshua Aizenman and Reuven Glick
NBER Working Paper No. 13902
March 2008, September 2008
JEL No. F15,F21,F31
ABSTRACT
This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments inflows, across countries and over time. We find that the extent of sterilization of foreign reserve inflows has risen in recent years to varying degrees in Asia as well as in Latin America, consistent with
References: Aizenman, Joshua and Reuven Glick, "Pegged Exchange Rate Regimes, A Trap?" Journal of Money, Credit,and Banking 40 (2008): 817-835. Aizenman, Joshua and Jae-woo Lee, “Financial versus Monetary Mercantilism – Long-run View of Large International Reserves Hoarding,” World Economy 31 (2008): 593-611. Aizenman Joshua and Nancy Marion, “International Reserves Holdings with Sovereign Risk and Costly Tax Collection,” Economic Journal 114 (2004): 569-591. Singapore, Singapore Centre for Applied and Policy Economics, December, 2005. Cochrane, John , “Production-Based Asset Pricing and the Link Between Stock Returns and Economic Fluctuation,” Journal of Finance 46 (1991): 209-237. Edwards, Sebastian and Eduardo Levy-Yeyati, “Flexible Exchange Rates as Shock Absorbers,” European Economic Review 49, (2005): 2079-2105 Eichengreen, Barry, “Kicking the Habit: Moving from Pegged Rates to Greater Exchange Rate Flexibility,” Economic Journal 109 (1999): 1-14. Fischer, Stanley, “Exchange Rate Regimes: Is the Bipolar View Correct?” The Journal of Economic Perspectives 15 (2001): 3-24. Working Paper 7338, September, (1999). Giovannini, Alberto and Martha De-Melo, “Government Revenue from Financial Repression,” American Economic Review 83 (1993): 953-963. Markets, Institutions and Money 10 (2000), 229–247. Levy-Yevati., Eduardo, “Liquidity Insurance in a Financially Dollarized Economy,” NBER Working Paper 12345, 2000. Mohanty, M.S. and Philip Turner, (2006) “Foreign Exchange Reserve Accumulation in Emerging Markets: What are the Domestic Implications? BIS Quarterly Review, Obstfeld, Maury and Kenneth Rogoff, “The Mirage of Fixed Exchange Rates,” Journal of Economic Perspectives, 9 (1995): 73-96. and Statistics 3 (2005): 423-438. Working Paper 2007-10, October, 2007.