Taper Tantrum and Emerging Equity Market Slumps

21 Pages Posted: 23 Dec 2015

See all articles by Gemma Bolotaulo Estrada

Gemma Bolotaulo Estrada

Asian Development Bank - Economic Research

Donghyun Park

Asian Development Bank - Economic Research

Arief Ramayandi

Asian Development Bank - Economic Research

Date Written: September 2015

Abstract

In the postglobal financial crisis period, the central banks of the advanced economies pursued unconventional monetary policies, such as the United States (US) Federal Reserve’s quantitative easing (QE). Those policies and their unwinding may significantly affect cross-border capital flows and thus destabilize the financial systems of emerging markets. For example, emerging markets experienced substantial financial instability during the taper tantrum triggered by the US Federal Reserve Chairman Ben Bernanke’s May 2013 announcement of the potential unwinding of QE. In this paper, we examine the spillovers from the taper tantrum on emerging markets more rigorously by using econometric analysis to empirically assess the effect on equity markets in emerging markets. Our central finding that virtually all emerging market equity markets were affected by the taper tantrum highlights the need for emerging market authorities to remain vigilant about the effects of advanced economy monetary policies on their financial stability.

Keywords: capital flows, emerging market, equity market, financial stability, global financial crisis, quantitative easing, taper tantrum

JEL Classification: F32, G15

Suggested Citation

Estrada, Gemma Bolotaulo and Park, Donghyun and Ramayandi, Arief, Taper Tantrum and Emerging Equity Market Slumps (September 2015). Asian Development Bank Economics Working Paper Series No. 451, Available at SSRN: https://ssrn.com/abstract=2707543 or http://dx.doi.org/10.2139/ssrn.2707543

Gemma Bolotaulo Estrada

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Donghyun Park (Contact Author)

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

Arief Ramayandi

Asian Development Bank - Economic Research ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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