Impact of Fed Tapering Announcements on Emerging Markets

Author/Editor: Prachi Mishra ; Kenji Moriyama ; Papa M'B. P. N'Diaye ; Lam Nguyen
Publication Date: June 17, 2014
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 14/109
Subject(s): Monetary policy | United States | Unconventional monetary policy instruments | Announcements | Emerging markets | Financial markets | Bond yields | Stock prices

Publication Date: June 17, 2014
ISBN/ISSN: 9781498361484/1018-5941 Format: Paper
Stock No: WPIEA2014109 Pages: 34
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