## Impact of Fed Tapering Announcements on Emerging Markets

_IMF Working Papers, June 17, 2014_

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**Canonical URL:** [Impact of Fed Tapering Announcements on Emerging Markets](https://www.imf.org/en/publications/wp/issues/2016/12/31/impact-of-fed-tapering-announcements-on-emerging-markets-41655)

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## Bibliographic details
- Authors: Prachi Mishra, Kenji Moriyama, Papa M N'Diaye, Lam Nguyen
- Published: June 17, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781498361484.001

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### Summary
- 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.
- Uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets.
- 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.
- There was less differentiation in the behavior of stock prices based on fundamentals.

### Methodology and Data
- Frequency: daily data.
- Assets analyzed: exchange rates, government bond yields, stock prices.
- Sample: 21 emerging markets.
- Event window: 2013–14 Fed announcements relating to tapering of asset purchases.

### Key Findings
- Markets differentiated across countries during volatile episodes linked to tapering announcements.
- Cross-country differentiation by asset type:
  - Exchange rates: Countries with stronger fundamentals, deeper financial markets, and tighter macroprudential stances experienced smaller currency depreciations.
  - Government bond yields: Those same country characteristics were associated with smaller increases in government bond yields.
  - Stock prices: Less differentiation in behavior based on fundamentals compared with exchange rates and bond yields.

### Policy Implications and Interpretations
- Strong macroeconomic fundamentals can mitigate currency depreciation and government bond yield spikes associated with external shocks such as Fed tapering announcements.
- Deeper financial markets appear to reduce vulnerability to sudden shifts in global financial conditions.
- Tighter macroprudential policy stances in the run-up to tapering episodes are associated with smaller adverse market reactions for currencies and sovereign yields.
- Stock markets showed more homogeneous reactions across countries, suggesting equity valuations may be driven by factors beyond domestic fundamentals during global announcement episodes.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/impact-of-fed-tapering-announcements-on-emerging-markets-41655_