Three essays on the macroeconomic effects of international capital flows (Malaysia, Philippines, Thailand, Indonesia)

This thesis presents three essays on the role of international capital flows in growth, real exchange rate behavior and the conduct of domestic monetary policy in four Asian economies. The first chapter develops an endogenous growth model based on an infinitely-lived optimizing representative agent. Data from the four Asian countries is used to test the implications of the model. Using applied time series econometric techniques, the results for Malaysia, Philippines and Thailand lend credence to the endogenous growth process, while it is rejected for Indonesia. Chapter 2 develops a three-good model for the internal real exchange rate to identify the fundamental determinants of the internal real exchange rates for exports and imports. The examination of the time series properties of the variables suggests that the internal real exchange rates in the ASEAN-4 countries were indeed driven by the fundamentals derived from the model. Furthermore, the results indicate that there was no misalignment between the actual and equilibrium real exchange rates. Movements in the real exchange rates were thus equilibrium responses to changes in the fundamentals. The third chapter estimates coefficients of capital flow offset to domestic monetary policy and sterilization and analyzes the implications for domestic monetary autonomy. The relative performance of the monetary model and the portfolio balance model is compared using quarterly data for the four countries. The empirical results show that the capital flow offset was less than complete and that sterilization turned out to be ineffective in three of the four countries.