Sterilization, Monetary Policy, and Global Financial Integration
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 greater concerns about the potential inflationary impact of reserve inflows. We also find that sterilization depends on the composition of balance of payments inflows.
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.
Joshua Aizenman & Reuven Glick, 2009. "Sterilization, Monetary Policy, and Global Financial Integration," Review of International Economics, Blackwell Publishing, vol. 17(4), pages 777-801, 09. citation courtesy of