Asset Purchase Programs in European Emerging Markets

Departmental Papers, September 24, 2021

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Asset Purchase Programs in European Emerging Markets

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Bibliographic details

• Authors: Marco Arena, Rudolfs Bems, Nadeem Ilahi, Jaewoo Lee, William Lindquist, Tonny Lybek
• Published: September 24, 2021
• Series: Departmental Papers
• DOI: https://doi.org/10.5089/9781513593753.087

Summary and Purpose

• Several emerging market central banks in Europe deployed asset purchase programs (APPs) amid the 2020 pandemic.
• The common main goals were to address market dysfunction and impaired monetary transmission, distinct from the quantitative easing conducted by major advanced economy central banks.
• APPs in this context focused on alleviating market dysfunction rather than the traditional emerging market concern of destabilizing the exchange rate or inflation expectations.

Key Findings and Evidence

• Evidence uncovered indicates APPs in European emerging markets:
  • Stabilized government bond markets.
  • Boosted equity prices.
  • Showed no indication of exchange rate pressure.
• Likely reflecting the global nature of the crisis, these APPs defied traditional emerging market concerns and instead alleviated markets successfully.

Constraints, Usability, and Scalability

• Global and domestic factors that could limit the usability of APPs were examined.
• In the event of renewed market dysfunction, there is a potential scope for scaling up APPs in most European emerging markets that used APPs during the pandemic, provided that:
  • They remain consistent with the primary objective of monetary policy.
  • They keep a safe distance from the risk of fiscal dominance.

Tapering, Unwinding, and Policy Sequencing

• As central banks in the region move towards monetary policy tightening, the tapering, ending, and unwinding of APPs must be carefully considered.
• Clear and transparent communication is critical at each step of the process, from the inception to the closure of APPs, particularly when a large shock hits and triggers a major policy shift.

Subjects and Keywords

• Subjects: Central bank policy rate, Emerging and frontier financial markets, Financial institutions, Financial markets, Financial services, Government securities, Monetary policy, Sovereign bonds, Yield curve.
• Keywords: asset purchase programs, Central bank policy rate, COVID-19 pandemic, Emerging and frontier financial markets, emerging market central banks, emerging market concern, Emerging markets, Europe, Global, Government securities, IMF library, market dysfunction, Monetary policy, Sovereign bonds, Yield curve.

Content in this bundle

• Asset Purchase Programs in European Emerging Markets, IMF Departmental Paper No DP/2021/021
  • Asset Purchase Programs in European Emerging Markets, IMF Departmental Paper No DP/2021/021 (Markdown version)
  • Asset Purchase Programs in European Emerging Markets, IMF Departmental Paper No DP/2021/021 (PDF)