ADB Economics Working Paper Series Effects of Quantitative Easing on Asia: Capital Flows and Financial Markets

Using trend and regression analyses, the authors find the first round of US quantitative easing as having significantly contributed to the rebound of capital inflows to Asia after the global financial crisis, by lowering domestic yields and sovereign risk premiums. The impact on asset prices varies, but there appears to be a tradeoff between currency appreciation and housing price increases. To avoid adverse implications of loose monetary policy in advanced economies, Asian economies need to strengthen macro-prudential policies, improve asset market monitoring, and maintain sufficient foreign reserve holdings in line with the increasing volatility of financial flows. About the Asian Development Bank ADB’s vision is an Asia and Pacific region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their people. Despite the region’s many successes, it remains home to two-thirds of the world’s poor: 1.7 billion people who live on less than $2 a day, with 828 million struggling on less than $1.25 a day. ADB is committed to reducing poverty through inclusive economic growth, environmentally sustainable growth, and regional integration. Based in Manila, ADB is owned by 67 members, including 48 from the region. Its main instruments for helping its developing member countries are policy dialogue, loans, equity investments, guarantees, grants, and technical assistance