Impact of Fed Tapering Announcements on Emerging Markets

35 Pages Posted: 18 Jul 2014

See all articles by Prachi Mishra

Prachi Mishra

International Monetary Fund (IMF) - Research Department

Kenji Moriyama

International Monetary Fund (IMF)

Papa N'Diaye

International Monetary Fund (IMF) - Asia and Pacific Department

Date Written: June 2014

Abstract

This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals.

Keywords: Monetary policy, United States, Unconventional monetary policy instruments, Announcements, Emerging markets, Financial markets, Bond yields, Stock prices, tapering, Fed policy announcements, vulnerability., stock market, bond, capital inflows, capital flow, equity prices, government bond yields, capital flows, government bond, bond yield, current account balance, bonds, financial structures, capital markets, stock market capitalization, domestic financial markets, stock price, capital inflow, bond purchases, government bonds, treasury bonds, reserve requirements, excessive capital inflow, hedge, sovereign bond, financial systems, current account deficit, commodity prices, asset markets, sove

JEL Classification: F41, F42

Suggested Citation

Mishra, Prachi and Moriyama, Kenji and N'Diaye, Papa, Impact of Fed Tapering Announcements on Emerging Markets (June 2014). IMF Working Paper No. 14/109. Available at SSRN: https://ssrn.com/abstract=2468014

Prachi Mishra (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Kenji Moriyama

International Monetary Fund (IMF) ( email )

Papa N'Diaye

International Monetary Fund (IMF) - Asia and Pacific Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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