Comments on “Sterilized Intervention

as a Complementary Macroprudential
Measure” by Dr. Atish R. Ghosh, IMF

Donghyun Park
Principal Economist
Asian Development Bank

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or
policies of the Asian Development Bank Institute (ADBI), the Asian Development Bank (ADB), its Board of
Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this
paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily1be
consistent with ADB official terms. 1
 Overall comments
● The paper examines the role of sterilized FX intervention as a
complementary macroprudential measure
 A potential side-benefit of sterilized FX intervention is to
absorb capital inflows which, in turn, helps to limit credit
growth
 Limiting credit growth reduces the probability of financial crisis,
especially in emerging markets

 Provides some empirical evidence that sterilized

intervention can offset the impact of capital inflows on
bank credit expansion
● The paper uses standard, appropriate econometric
methodology
● Conceptually clear, and well-written and structured
2
 Specific comment 1:
Complementarity with traditional
macroprudential measures
● The paper rightfully emphasizes that sterilized FX
intervention is a complementary macroprudential
measure
● It is an effective and flexible but complementary measure
● But what is the relationship between sterilized FX
intervention and traditional macroprudential
measures?
● Does sterilized intervention improve the effectiveness of
LTV, DTI and so forth?
● Cross-country analysis or country case study

3
 Specific comment 2:
Effect on leverage?
● Macroprudential measures are designed to address
three types of risks to financial stability.
● Credit-related risks
● Liquidity-related risks
● Capital-related risks
● It would be useful to examine the effect of sterilized
FX intervention on other measures of financial
stability?
● Leverage growth
● Measures of liquidity conditions

4
 Specific comment 3:
FX rate channel or bank credit channel?
● The paper finds that capital inflows make crisis more
likely primarily via currency overvaluation and
domestic credit growth

● Is it possible to empirically assess the relative

importance of each?
● Equivalently, what is the relative importance of
“sterilized” versus “FX” in sterilized FX intervention?

● Finally, as food for thought, currency appreciation is

analytically equivalent to monetary tightening, so it
may promote financial stability.