The Effect of Capital Flow Management Measures in Five Asian Economies on the Foreign Exchange Market

This paper examines the effects of the capital flow management measures (CFMs) introduced by five Asian economies (Indonesia, Korea, Malaysia, the Philippines and Thailand) to deal with large capital inflows on the foreign exchange market. Using the GARCH methodology, this paper models the changes in these economies' exchange rates against the US dollar with the eight CFMs from February 2010 to March 2011 as the focal explanatory variable. The empirical results show that four CFMs stabilized the exchange rates by reducing exchange rate volatility and one had an effect on the exchange rate level. However, their effects on the currency option market were mixed