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Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets

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  • Eichengreen, Barry
  • Gupta, Poonam

Abstract

In May 2013, Federal Reserve officials first began to talk of the possibility of tapering their security purchases. This “tapering talk” had a large negative impact on the exchange rate and financial markets in emerging markets. In this paper, we analyze who was hit and why. We find that countries with larger and more liquid markets and larger inflows of capital in prior years experienced more pressure on their exchange rate, foreign reserves, and equity prices. We interpret this as investors being able to rebalance their portfolios more easily when the target country has a large and liquid financial market.

Suggested Citation

  • Eichengreen, Barry & Gupta, Poonam, 2015. "Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets," Emerging Markets Review, Elsevier, vol. 25(C), pages 1-15.
    • Handle: RePEc:eee:ememar:v:25:y:2015:i:c:p:1-15
    DOI: 10.1016/j.ememar.2015.07.002
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    More about this item

    Keywords

    Tapering talk; Capital flows; Emerging markets;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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