Effects of Emerging Market Asset Purchase Program Announcements on Financial Markets During the COVID-19 Pandemic

IMF Working Papers, December 18, 2020

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Asset purchase announcements by emerging market central banks during the COVID-19 pandemic:
- lowered bond yields.
- did not lead to a depreciation of domestic currencies.
- did not have much effect on equities.
The immediate effect of asset purchases appears positive, but the paper emphasizes the need for further consideration of risks and longer-term effects of unconventional monetary policies.
The study highlights trade-offs involved with implementation and discusses risks associated with asset purchase programs.
The working paper contributes to the debate on whether asset purchase programs should be a regular part of the emerging market policy toolkit.

The analysis uses both event studies and local projections methodology to assess effects on domestic financial markets.

While early outcomes suggest benefits (lower bond yields without currency depreciation or large equity impacts), policymakers should weigh:
- trade-offs involved in implementing asset purchase programs.
- longer-term risks and potential unintended consequences of unconventional monetary policies.

Subject: Bond yields, Central bank policy rate, Currencies, Stock markets, Yield curve
Keywords: asset purchase, asset purchase program, bonds, central banks, COVID-19, EM currency, EM equity, emerging markets., equities, foreign exchange, market dynamics, market volatility, pandemic, policy announcement, policy spillover, QE announcement, quantitative easing, WP