Unconventional Monetary Policy Shocks and the Spillovers to Emerging Markets
HKIMR Working Paper No.18/2014
29 Pages Posted: 8 Aug 2014
Date Written: August 7, 2014
Unconventional monetary policy such as Quantitative Easing (QE) is often considered to have considerable spillover effects on emerging market economies (EME). Aims at quantifying these effects so far mostly use high-frequency data around announcement dates, panels or VAR models. This paper proposes an alternative way to estimate the effects of QE on emerging markets that allows us to include macroeconomic, i.e. low-frequency, data together with announcement dates. A Qual VAR is estimated that integrates binary information of QE announcements with an otherwise standard VAR including US and emerging market variables. The model uncovers the Fed's latent, unobservable propensity for QE and generates impulse responses for EME variables to QE shocks. The results suggest that QE has strong effects on EME's financial conditions and plays a large role in explaining capital inflows, equity prices and exchange rates.
Keywords: Qual VAR, Unconventional Monetary Policy, Emerging Markets, Spillovers, LSAP
JEL Classification: E32, E44, F32
Suggested Citation: Suggested Citation