Impact of US Quantitative Easing Policy on Emerging Asia
Morgan, Peter J. | November 2011
Abstract
The adoption of quantitative easing (QE) policy by the United States (US) Federal Reserve Bank since early 2009 has aroused widespread concerns in Asia and elsewhere regarding its possible impact in terms of the weakening of the US dollar and stimulating capital outflows to emerging economies that might increase inflationary pressures in them. This report investigates possible impacts of US quantitative easing policy on Asian economies and financial markets. Our basic approach is to take the period of November 2009–October 2010, when no quantitative easing took place, as a baseline period against which we can compare the effects of quantitative easing on monetary flows during the “QE1” and “QE2” periods. We estimate that about 40% of the increase in the US monetary base in the QE1 period leaked out in the form of increased gross private capital outflows and about one-third leaked out during the first two quarters of the QE2 period. An excess private financial capital inflow to Emerging Asia of $9 billion per quarter was estimated for the first two quarters of the QE2 period, which was relatively consistent with the estimated amounts of the excess increases in foreign exchange reserves and the monetary base in the region during that period. However, this amount is small, and hence was unlikely to have a significant impact on financial markets, economic activity or inflation. We also investigate the impacts of QE policy on regional bond yields and exchange rates using event window analysis, and find that the greatest impacts were a stronger Korean won and lower bond yields in Indonesia.
Citation
Morgan, Peter J.. 2011. Impact of US Quantitative Easing Policy on Emerging Asia. © Asian Development Bank. http://hdl.handle.net/11540/3906. License: CC BY 3.0 IGO.Keywords
Financial Stability
Financial Management System
Financial Restructuring
Capital Market Development
Erosion
Market Development
Economics
Erosion
International Economics
International Financial Market
Multilateral Financial Institutions
Economic Recession
Market
Crisis
Business recessions
Multilateral development banks
Regulatory reform
Capital
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Citable URI
http://hdl.handle.net/11540/3906Metadata
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