Capital Flows During Quantitative Easing: Experiences of Developing Countries

Donghyun Park, Arief Ramayand, Kwanho Shin

Research output: Contribution to journalArticlepeer-review

16 Citations (Scopus)


A potentially important side effect of quantitative easing (QE) by the United States Federal Reserve was the expansion of capital flows into developing countries. As a result, there were widespread concerns that reversing QE might trigger financial instability in those countries. The central objective of our article is to empirically investigate this important issue by (1) examining the effect of QE on capital flows into developing Asia and (2) identifying the most significant factors that influence the effect of a QE taper tantrum on exchange rate instability. We find that capital flows into developing countries during QE were at least comparable to those before the global financial crisis. We also find that capital flows during QE and the symptoms of those capital flows such as high inflation, credit expansion, and the deterioration of the current-account balance accounted for much of the destabilizing effect of a QE taper tantrum. While there is no evidence that macroprudential policies directly reduce the destabilizing effect, they can nevertheless be useful preemptive measures.

Original languageEnglish
Pages (from-to)886-903
Number of pages18
JournalEmerging Markets Finance and Trade
Issue number4
Publication statusPublished - 2016 Apr 2

Bibliographical note

Funding Information:
This is a modified version of ADB Working Paper No. 409 that was initially prepared for background for the Asian Development Outlook 2014. We thank Kristin Forbes for sharing the data on macroprudential measures and Poonam Gupta for helping us replicate her empirical results. We also thank Jisoo Kim, Jina Lee, and Aleli A. Rosario for their excellent research assistance. This work was supported by the Asian Development Bank, Korea University Grant (K1421841), and the National Research Foundation (NRF-2014S1A3A2044456).

Publisher Copyright:
Copyright © Taylor & Francis Group, LLC.

Copyright 2016 Elsevier B.V., All rights reserved.


  • Asia
  • capital flows
  • financial stability
  • global financial crisis
  • macroprudential measures
  • quantitative easing
  • taper tantrums
  • tapering

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)


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