The Transmission of Federal Reserve Tapering News to Emerging Financial Markets

38 Pages Posted: 19 Mar 2014

See all articles by Joshua Aizenman

Joshua Aizenman

University of Southern California - Department of Economics; National Bureau of Economic Research (NBER)

Mahir Binici

Central Bank of Turkey

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2014

Abstract

This paper evaluates the impact of tapering “news” announcements by Fed senior policy makers on financial markets in emerging economies. We apply a panel framework using daily data, and find that emerging market asset prices respond most to statements by Fed Chairman Bernanke, and much less to other Fed officials. We group emerging markets into those with “robust” fundamentals (current account surpluses, high international reserves and low external debt) and those with “fragile” fundamentals and, intriguingly, find that the exchange rates of the robust group (and lesser extend equity prices and CDS spreads) were more adversely affected to tapering news than the fragile group. The cumulative effects of tapering announcements after a month, however, appear to be quite similar for both robust and fragile emerging markets. We also show that more financially developed economies are more impacted by tapering news and a plausible interpretation is that more financially developed economies are more exposed, at least in the short-term, to external news announcements.

Suggested Citation

Aizenman, Joshua and Binici, Mahir and Hutchison, Michael M., The Transmission of Federal Reserve Tapering News to Emerging Financial Markets (March 2014). NBER Working Paper No. w19980. Available at SSRN: https://ssrn.com/abstract=2411282

Joshua Aizenman (Contact Author)

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mahir Binici

Central Bank of Turkey ( email )

Ankara, Ankara 06050
Turkey

Michael M. Hutchison

University of California, Santa Cruz - Department of Economics ( email )

Social Sciences I
Santa Cruz, CA 95064
United States
831-459-2600 (Phone)
831-459-5900 (Fax)

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