Prolonged Reserves Accumulation,Credit Booms,Asset Prices and Monetary Policy in Asia |
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Authors: | Andrew J Filardo |
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Institution: | Bank for International Settlements, Basel, Switzerland |
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Abstract: | This article examines past evidence of prolonged periods of foreign exchange reserves accumulation in the Asia-Pacific region. Several proxies for this unobserved variable are considered, including a newly proposed one based on a factor model. We focus on identifying periods of prolonged interventions and identify its key macro-financial determinants. Two broad conclusions emerge from the stylized facts and the econometric evidence. First, the best protection against costly reserves accumulation is a more flexible exchange rate. Second, the necessity to accumulate reserves as a bulwark against goods price inflation is misplaced. Instead, there is a strong link between asset price movements and the likelihood of accumulating foreign exchange reserves that are costly. Policy implications are also drawn. |
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Keywords: | foreign exchange reserves accumulation monetary and financial stability |
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