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    Macro-prudential Response to Increased Global Market Volatility

    Kang, Tae Soo; Lim, Tae Hoon; Suh, Hyunduk; Kang, Eunjung | March 2016
    Abstract
    The volatility of price indicators has remained extremely stable during the period of low interest rates since the Global Financial Crisis (GFC) of September 2009. Low volatility pushes down risk premium, which can cause an upturn in global investors’ risk appetite. There has been a big change in global liquidity flows since 2009. Emerging market economies (EMEs), with relatively high credit risk, received huge capital inflows backed by the escalated risk appetite of global investors. The US Federal Reserve is now trying to normalize its monetary policy by pushing up the policy rate, tied at zero lower bound for about seven years. In December 2015, the Federal Reserve raised interest rates for the first time in nine years. This will bring about asset price volatility and cause risk premiums to normalize. We remain concerned about the downside risk to capital outflows from EMEs, including Korea. And this may well potentially cause a decrease in asset price and growth contraction in EMEs. Accordingly, we provide an overview of the volatility of financial markets and new trends in capital flows, and identify the determinants of capital flows to/from EMEs. We also review the use of capital flow management policies in EMEs including Korea, and examine the effectiveness of Asset-Based Reserve Requirements (ABRR) as an alternative macro-prudential policy measure to manage capital flows.
    Citation
    Kang, Tae Soo; Lim, Tae Hoon; Suh, Hyunduk; Kang, Eunjung. 2016. Macro-prudential Response to Increased Global Market Volatility. © Korea Institute for International Economic Policy. http://hdl.handle.net/11540/9167.
    ISSN
    2233-9140
    Keywords
    Development Economics
    Regional Economic Development
    Economic Impact
    Asian Development Bank
    Development
    Macroeconomic
    Macroeconomic Analysis
    Macroeconomic Framework
    Macroeconomic Models
    Macroeconomic Performance
    Macroeconomic Planning
    Macroeconomic Policies
    Macroeconomic Reform
    Macroeconomic Stabilization
    Economies in transition
    Economic agreements
    Development indicators
    ADB
    Economic development
    Gross domestic product
    Employment
    Economic forecast
    Economic indicators
    Growth models
    Gross domestic product
    Macroeconomics
    Economic forecast
    Social condition
    Economic dependence
    Economic assistance
    Comparative economics
    Regional economics
    Economic development projects
    Open price system
    Price fixing
    Price regulation
    Consumer price indexes
    Financial crisis
    Labor economics
    Regional economics
    Turnover
    Economic survey
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    Citable URI
    http://hdl.handle.net/11540/9167
    Metadata
    Show full item record
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    WEU16-07.pdf (779.6Kb)
    Author
    Kang, Tae Soo
    Lim, Tae Hoon
    Suh, Hyunduk
    Kang, Eunjung
    Theme
    Economics
    Development
     
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise
    Copyright 2016-2020 Asian Development Bank Institute, except as explicitly marked otherwise