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Foreign exchange inflows in emerging markets: how much are they sterilised?

Bleaney, Michael; Devadas, Sharmila


Michael Bleaney

Sharmila Devadas


As some emerging market economies have amassed large quantities of foreign exchange reserves, concern has arisen over the sterilisation of the domestic money stock from these flows. Existing studies focus mostly on narrow (reserve) money, and estimate a high degree of sterilisation. Empirical work on the long-run relationship between money and prices emphasises broad money, yet the long-run effect of foreign exchange inflows on broad money has been almost entirely ignored. Using a sample of quarterly data from 28 countries over the period 1990-2010, it is shown that broad money is sterilised to a significantly smaller degree than reserve money, raising concerns about the implications for financial imbalances and inflation. This pattern of sterilisation is not confined to any particular group of countries and is unrelated to the nature of the flows (e.g. current account versus capital account surpluses). Sterilisation rates have increased in Asia during the recent period of persistent accumulation of foreign exchange reserves.


Bleaney, M., & Devadas, S. (in press). Foreign exchange inflows in emerging markets: how much are they sterilised?. Manchester School,

Journal Article Type Article
Acceptance Date Jan 4, 2016
Online Publication Date Feb 26, 2016
Deposit Date Apr 14, 2016
Publicly Available Date Apr 14, 2016
Journal Manchester School
Print ISSN 1463-6786
Electronic ISSN 1467-9957
Publisher Wiley
Peer Reviewed Peer Reviewed
Keywords foreign exchange intervention, money, sterilisation, emerging markets
Public URL
Publisher URL
Additional Information This is the peer reviewed version of the following article: Bleaney, M. and Devadas, S. (2016), Foreign Exchange Inflows in Emerging Markets: How Much are they Sterilised?, which has been published in final form at The Manchester School. doi: 10.1111/manc.12144. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.


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