Taper Tantrums: QE, Its Aftermath and Emerging Market Capital Flows
59 Pages Posted: 23 Mar 2017 Last revised: 11 Jul 2018
Date Written: June 26, 2018
This paper examines the spillover effects of U.S. unconventional monetary policy (UMP) on emerging market capital flows and asset prices. Affine term structure model estimates show that U.S. monetary policy shocks, identified with high-frequency Treasury futures data, represent revisions to expected short-term yields and term premia, especially during the UMP period. The policy shocks exhibit sizable effects on U.S. holdings of emerging-market assets. These effects disproportionately manifest through valuation changes versus physical flows, are more pronounced for equity relative to bond markets, and are asymmetric between the QE and tapering periods, with flows more important during the unwinding.
Keywords: Unconventional monetary policy, U.S. investors, international spillovers, emerging markets, high frequency identification, affine term structure models, asset prices, portfolio flows
JEL Classification: E52, E58, F21, F32, G15
Suggested Citation: Suggested Citation