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The effect of reducing quantitative easing on emerging markets

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  • Taoufik Bouraoui

Abstract

On 22 May and 19 June 2013, the US Federal Reserve (Fed) announced a reduction in the asset purchase programme of its quantitative easing policy. This article investigates the impact of this news on the currencies of emerging markets. Using event study methodology, our results report a global significant depreciation in the currencies of all emerging markets in our sample, but with different depreciation sizes from one market to another. To test whether the depreciation in currencies is driven by capital flow components, a regression analysis is performed. Inward FDI as well as outward FDI appear to have more explanatory power than inward and outward portfolio investment in explaining the impact. With the slowdown in asset purchases by the Fed, emerging countries have incurred large capital outflows from their markets to the US market, resulting in a drop in their currencies.

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  • Taoufik Bouraoui, 2015. "The effect of reducing quantitative easing on emerging markets," Applied Economics, Taylor & Francis Journals, vol. 47(15), pages 1562-1573, March.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:15:p:1562-1573
    DOI: 10.1080/00036846.2014.1000524
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    2. Stephanos Papadamou & Nikolaos A. Kyriazis & Panayiotis G. Tzeremes, 2019. "Spillover Effects of US QE and QE Tapering on African and Middle Eastern Stock Indices," JRFM, MDPI, vol. 12(2), pages 1-20, April.
    3. Alexander Berglund & Massimo Guidolin & Manuela Pedio, 2020. "Monetary policy after the crisis: A threat to hedge funds' alphas?," Journal of Asset Management, Palgrave Macmillan, vol. 21(3), pages 219-238, May.
    4. Taoufik Bouraoui & Helmi Hammami, 2017. "Does political instability affect exchange rates in Arab Spring countries?," Applied Economics, Taylor & Francis Journals, vol. 49(55), pages 5627-5637, November.
    5. Alexander Berglund & Massimo Guidolin & Manuela Pedio, 2018. "Monetary Policy after the Crisis: Threat or Opportunity to Hedge Funds' Alphas?," BAFFI CAREFIN Working Papers 1884, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Massimo Guidolin & Alexei Orlov, 2020. "Are Unconventional Monetary Policies a Priced Risk Factor for Hedge Fund Strategies?," BAFFI CAREFIN Working Papers 20146, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    7. Stephanos Papadamou & Νikolaos A. Kyriazis & Panayiotis G. Tzeremes, 2020. "US non-linear causal effects on global equity indices in Normal times versus unconventional eras," International Economics and Economic Policy, Springer, vol. 17(2), pages 381-407, May.

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