Macro-Financial Linkages in the Pacific Region

296 Pages·2015·1.99 MB·English

by  Akira Kohsaka

Macro-fi nancial Linkages
in the Pacifi c Region
Growth perspectives in emerging market economies are increasingly dependent
on international capital fl ows in recent decades because of their infl uence on
business cycles. In fact, volatile international capital fl ows have been one of the
main concerns for the macroeconomic policy authorities. Focusing on emerging
economies in the Pacifi c region, this book reveals how they are different from
those in other regions in terms of international macro-fi nancial linkages to the
global capital market and domestic fi nancial development.
The book also discusses how these characteristics have interacted with their
macroeconomic policy regimes and their macroeconomic performance through-
out the two major international fi nancial crises in the preceding more than two
decades. It suggests facts that have strengthened the resilience of these emerging
economies in the Pacifi c region against the global fi nancial crisis along with the
intensifi ed intra-regional economic integration through trade and investment.
The book also examines their macroeconomic management, focusing on monetary
policy regimes, and suggests that their factual unorthodox policies with exchange
rate management and capital controls have contributed to their resilience against
the intrinsic volatility of the international capital market and fi nancial fl ows.
Akira Kohsaka has been affi liated with School of International Studies, Kwansei
Gakuin University, Nishinomiya, Japan, since 2011. He received his PhD in
economics from Stanford University in 1984. He has worked for the Institute
of Developing Economies, Tokyo (1975–88), Kyoto University (1988–94) and
Osaka University (1994–2011). His major research fi elds include international
economics and development economics. He has also taken on other roles such
as President of the East Asian Economic Association (2012–), editor of A sian
Economic Journal (2001–6) and international steering committee member of
the Pacifi c Forum for Trade and Development (1998–).
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Macro-fi nancial Linkages
in the Pacifi c Region
Edited by
Akira Kohsaka
First published 2015
by Routledge
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and by Routledge
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Routledge is an imprint of the Taylor & Francis Group,
an informa business
© 2015 Akira Kohsaka
The right of Akira Kohsaka to be identifi ed as the author of the
editorial material, and of the authors for their individual chapters,
has been asserted in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilized in any form or by any electronic,
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publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identifi cation and
explanation without intent to infringe.
British Library Cataloguing in Publication Data
A catalogue record for this book is available from the British
Library
Library of Congress Cataloging-in-Publication Data
Macro-fi nancial linkages in the Pacifi c region / edited by Akira
Kohsaka.
pages cm
Includes bibliographical references.
1. Finance—Asia. 2. Finance—Pacifi c Area. 3. Monetary
policy—Asia. 4. Monetary policy—Pacifi c Area. 5. Capital
market—Asia. 6. Capital market—Pacifi c Area. I. Kohsaka,
Akira, editor. II. Kohsaka, Akira. Macro-fi nancial linkage and
fi nancial deepening. Container of (work):
HG187.A2M325 2015
332′.042095—dc23
2014027475
ISBN: 978-1-138-80653-5 (hbk)
ISBN: 978-1-315-75163-4 (ebk)
Typeset in Galliard
by Apex CoVantage, LLC
Contents
List of Figures vii
List of Tables x
Contributors xii
Introduction 1
AKIRA KOHSAKA
PART I
Macro-fi nancial linkages and fi nancial deepening 13
1 Macro-fi nancial linkages and fi nancial deepening: an overview 15
AKIRA KOHSAKA
2 Macro-fi nancial linkage and fi nancial deepening in China 39
KUMIKO OKAZAKI AND TOMOYUKI FUKUMOTO
3 Macro-fi nancial linkage and fi nancial deepening in
the Philippines 66
CAYETANO W. PADERANGA, JR.
4 Macro-fi nancial linkage and fi nancial deepening in Thailand 82
CHAIYASIT ANUCHITWORAWONG
5 Macro-fi nancial linkage and fi nancial deepening in
Chinese Taipei 117
SHENG-CHENG HU
PART II
Monetary policy regimes 137
6 Monetary policy regimes: an overview 139
AKIRA KOHSAKA
vi Contents
7 Monetary policy frameworks in Asia 159
PETER J. MORGAN
8 Monetary policy regime in China 192
DONGMIN LIU AND ZHENXIN ZHU
9 Monetary policy regime in Indonesia 219
SOLIKIN M. JUHRO AND MIRANDA S. GOELTOM
10 A macroprudential perspective in central banking 249
SHIGENORI SHIRATSUKA
Index 279
Figures
1.1 Financial stress in emerging and advanced economies 18
1.2 Financial exposure of emerging markets to advanced economies 19
1.3 Financial linkages between advanced and emerging economies 20
1.4 Financial infl ows to East Asia 22
1.5 Financial infl ows to emerging markets 23
1.6 Savings and investment 26
1.7 Financial depth 27
2.1 Current account balance in China 41
2.2 Comparison of leverage between Japan and China 42
2.3 Sources of funds for fi xed asset investment in China 43
2.4 China’s savings rate 44
2.5 Profi ts of the major listed commercial banks
(before income tax) 45
2.6 Ratios of NPLs to total loans for major commercial
banks in China 45
2.7 Trend of international capital fl ow into China 46
2.8 Net private capital fl ow in China 47
2.9 Trend of RMB exchange rate to US dollars 47
2.10 Direct investment to/from China 48
2.11 Portfolio investment into and out of China 50
2.12 Outline of the banking system reform in China 52
2.13 Nominal GDP growth and interest rates in China 53
2.14 Net increase of RMB bank loans (monthly) in China 54
2.15 Outstanding bonds in Asia 55
2.16 Size of stock issuance by Chinese corporations 56
2.17 Price index of Shanghai stock exchange 57
2.18 Trend of property prices in major cities (primary residence) 57
3.1 Major trading partners of the Philippines, 1990 and 2008 68
3.2 Philippines quarterly output and exports growth rates,
2001Q1 to 2010Q2 70
3.3 Overseas-deployed Filipino workers (OFWs), January
2002 to November 2009 73
viii Figures
3.4 Remittances from overseas Filipino workers (OFWs),
January 2002 to December 2009 74
3.5 Credit default swaps for selected Asian countries,
senior fi ve-year, January 2007 to December 2009 75
3.6 Portfolio investments in the Philippines, January 2006
to December 2009 76
3.7 Selected asset quality indicators for the banking system,
2000Q1 to 2009Q4 77
3.8 Gross value added (GVA) on insurance and growth rate,
2000–2009 78
4 .1 Financial and trade openness 84
4 .2 Annual percentage growth rates of the GDP by country
group/countries 86
4 .3 Co-movement correlation between Thailand and
other countries 87
4.4 Annual percentage growth rates of GDP components 88
4.5 Fiscal balance and public debt 89
4 .6 Annual percentage growth rates of value added in
manufacturing and fi nancial sectors 91
4 .7 Net capital fl ows 94
4.8 Cumulative current account balance and net international
investment position 98
4 .9 Percentage change in stock price indices 99
4.10 Average spread for AAA and BBB corporate bonds
with three- to fi ve-year maturities 100
4.11 Average yields of government and corporate bonds 101
4 .12 Credit and deposit expansion 106
4.13 The fi nancial strength of Thai banks 106
5.1 Economic growth and unemployment 118
5.2 Growth rate of the money supply (M2) 123
5.3 Interest rates 124
5.4 Private-sector fi nancing 125
5.5 Changes in foreign exchange reserves 126
5.6 Monthly rates of change in currency values 128
5.7 Fluctuations in stock prices: newly industrialized
Asian economies 129
6.1 Macroeconomic policy trilemma:
ASEAN+3 economies 142
6.2 Exchange rates and international reserves 143
6.3 Exchange rate and foreign exchange market intervention 145
6.4 Financial infl ows: Asia and the Pacifi c region 146
6.5 Financial (dis)intermediation to the private sector 149
6.6 Per capita GDP growth 150
6 .7 Net capital fl ows to emerging economies 152
6.8 Global imbalances 153
Figures ix
6.9 Household consumption 155
7.1 Increase in central bank independence, 1996 to 2005 161
7.2 Financial stability–related mandates of central banks in 2009 168
7.3 Chinn–Ito Indices for major Asian emerging economies 176
7.4 Gross capital infl ows in emerging Asia 177
7.5 Net capital infl ows in emerging Asia 178
7.6 Infl ation rates of Asian IT and non-IT countries 180
7.7 Evolution of exchange rate fl exibility in Asia 183
7.8 Trilemma values for ASEAN+3 economies in 2009 183
8.1 RMB exchange rate 194
8.2 Consumer price index: 1990–2013 204
8.3 Contribution to GDP growth 206
8.4 GDP growth for major countries 207
8.5 Infl ation rates for BRIC nations 208
8.6 Real estate price index in 70 major cities and M2 209
8.7 The registered unemployment rate 210
8.8 Growth of disposable income per capita for urban households 210
8.9 Cross-border yuan trade settlement amounts 211
8.10 Proportion of RMB settlement in China’s international trade 211
8.11 China’s foreign exchange reserves 212
8.12 RMB exchange rate 213
9.1 Monetary policy framework before the Asian fi nancial
crisis of 1997–8 223
9.2 Infl ation targeting policy framework in the period after the
1997–8 Asian fi nancial crisis 225
9.3 Capital fl ows and exchange rate depreciation/appreciation 228
9.4 Net foreign assets and excess liquidity 230
9.5 Growth of real GDP and credit 231
9.6 BI Rate and market interest rates 232
9.7 Exchange rate depreciation/appreciation and infl ation 234
9.8 Growth of monetary aggregates and infl ation 235
9.9 Bank Indonesia monetary policy trilemma management 241
9.10 Monetary policy framework under “enhanced” ITF 242
10.1 Illustration of the bubble economy in Japan 252
10.2 The fi nancial and economic environment 253
10.3 The “three excesses” in the Japanese business sector 254
10.4 Asset-price defl ation 255
10.5 Structure of fi nancial intermediations 257
10.6 Housing prices and credit in the United States 258
10.7 Securitization markets related to U.S. subprime mortgages 259
10.8 Credit-to-GDP ratio in Japan 263
10.9 Output declines after the crises 265
10.10 Policy frontier for the two stabilities: illustration 267
10.11 Price development since the mid-1980s 268