Transmitting global liquidity to East Asia: policy rates, bond yields, currencies and dollar credit

We review extant work on the transmission of monetary policy, both conventional and unconventional, of the major advanced economies to East Asia through monetary policy reactions, integrated bond markets and induced currency appreciation. We present new results on the growth of foreign currency credit, especially US dollar credit, as a transmission mechanism. Restrained growth of dollar credit in Korea contrasts with very rapid growth on the Chinese mainland and in Hong Kong SAR.

JEL classification: E43, E52, F3, F42, G21, G28

Keywords: global liquidity, Taylor rule, monetary policy, bond markets, exchange rates, foreign currency debt, dollarisation, macroprudential policy, capital controls