Effects of US Quantitative Easing on Emerging Market Economies

83 Pages Posted: 8 Dec 2015  

Saroj Bhattarai

University of Texas at Austin - Department of Economics

Arpita Chatterjee

UNSW Australia Business School, School of Economics

Woong Yong Park

University of Illinois at Urbana-Champaign - Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 1, 2015

Abstract

We estimate international spillover effects of US Quantitative Easing (QE) on emerging market economies. Using a Bayesian VAR on monthly US macroeconomic and financial data, we first identify the US QE shock with non-recursive identifying restrictions. We estimate strong and robust macroeconomic and financial impacts of the US QE shock on US output, consumer prices, long-term yields, and asset prices. The identified US QE shock is then used in a monthly Bayesian panel VAR for emerging market economies to infer the spillover effects on these countries. We find that an expansionary US QE shock has significant effects on financial variables in emerging market economies. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital inflows to these countries. These effects on financial variables are stronger for the “Fragile Five” countries compared to other emerging market economies. We however do not find significant effects of the US QE shock on output and consumer prices of emerging markets.

Keywords: US Quantitative Easing, Spillovers, Emerging Market Economies, Bayesian VAR, Panel VAR, Non-recursive Identification, Fragile Five Countries

JEL Classification: C31, E44, E52, E58, F32, F41, F42

Suggested Citation

Bhattarai, Saroj and Chatterjee, Arpita and Park, Woong Yong, Effects of US Quantitative Easing on Emerging Market Economies (December 1, 2015). Crawford School CAMA Working Paper No. 47/2015. Available at SSRN: https://ssrn.com/abstract=2700497

Saroj Bhattarai

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

Arpita Chatterjee

UNSW Australia Business School, School of Economics ( email )

High Street
Sydney, NSW 2052
Australia

Woong Yong Park (Contact Author)

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

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