International reserves, economic crisis and monetary autonomy in Asia: a panel data analysis

Abstract

ABSTRACT A country cannot simultaneously have an independent monetary policy, fixed exchange rate and freely mobile capital. This paper uses data from 10 Asian economies in recent years to investigate the macroeconomic trilemma. It makes special reference to the role of exchange rate regimes, capital controls, economic crisis, and international reserve holdings to analyse how interest rate changes in the centre country affect peripheral countries’ interest rates. The main findings support the existence of a macroeconomic trilemma. Moreover, we find that international reserves help to provide monetary autonomy with a buffer even under a fixed exchange rate and free capital mobility regime.