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A reexamination of capital controls’ effectiveness: recent experience of Thailand

A reexamination of capital controls’ effectiveness: recent experience of Thailand
A reexamination of capital controls’ effectiveness: recent experience of Thailand
This paper investigates the impact of the Unremunerated Reserve Requirement (URR) measure recently imposed in Thailand by applying three quantitative techniques of Edison and Reinhart (2001). We find that the URR measure was not completely effective in stabilizing the exchange rate, which was its original purpose. Although the THB onshore rate became more stable and less interdependent after the implementation of the URR, it was not completely isolated from other Asian currencies. Meanwhile, the URR measure was successful in reducing the total of net capital inflow and altering its composition toward preferable long-term investment, but it was unsuccessful in reducing short-term private external debt. In addition, since foreign equity investment was exempted from the measure, short-term capital inflows were forced to go mainly through the stock market; consequently, the URR had a limited impact on the equity market. Lastly, we find some side-effects of the measure, namely a wider spread between onshore and offshore rates, a bearish market sentiment, an obstacle to the debt market development, and a negative effect on the credibility of the Monetary Authority.
Capital controls, exchange rate stability, Asian stock markets, global financial crisis
1049-0078
26-38
Abhakorn, Pongrapeeporn
57e5db4a-9f8f-441b-9fab-8b6f86ab1a70
Tantisantiwong, Nongnuch
73b57288-a4dc-4456-8d1b-12b8d07dc3b4
Abhakorn, Pongrapeeporn
57e5db4a-9f8f-441b-9fab-8b6f86ab1a70
Tantisantiwong, Nongnuch
73b57288-a4dc-4456-8d1b-12b8d07dc3b4

Abhakorn, Pongrapeeporn and Tantisantiwong, Nongnuch (2012) A reexamination of capital controls’ effectiveness: recent experience of Thailand. Journal of Asian Economics, 23 (1), 26-38. (doi:10.1016/j.asieco.2011.11.004).

Record type: Article

Abstract

This paper investigates the impact of the Unremunerated Reserve Requirement (URR) measure recently imposed in Thailand by applying three quantitative techniques of Edison and Reinhart (2001). We find that the URR measure was not completely effective in stabilizing the exchange rate, which was its original purpose. Although the THB onshore rate became more stable and less interdependent after the implementation of the URR, it was not completely isolated from other Asian currencies. Meanwhile, the URR measure was successful in reducing the total of net capital inflow and altering its composition toward preferable long-term investment, but it was unsuccessful in reducing short-term private external debt. In addition, since foreign equity investment was exempted from the measure, short-term capital inflows were forced to go mainly through the stock market; consequently, the URR had a limited impact on the equity market. Lastly, we find some side-effects of the measure, namely a wider spread between onshore and offshore rates, a bearish market sentiment, an obstacle to the debt market development, and a negative effect on the credibility of the Monetary Authority.

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More information

Published date: 1 February 2012
Keywords: Capital controls, exchange rate stability, Asian stock markets, global financial crisis
Organisations: Centre for Digital, Interactive & Data Driven Marketing, Banking & Finance

Identifiers

Local EPrints ID: 369327
URI: https://eprints.soton.ac.uk/id/eprint/369327
ISSN: 1049-0078
PURE UUID: 880255bf-3242-441d-96ce-4a0fc869b70d

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Date deposited: 01 Oct 2014 10:59
Last modified: 12 Jun 2018 16:32

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