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Foreign Exchange and Global Monetary Shocks: The Asymmetric Effects of Advanced Economies’ Quantitative Easing on Exchange Rate Volatility in Emerging Markets

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  • Helena Glebocki Keefe
  • Sujata Saha

Abstract

This research assesses the impact of global monetary shocks stemming from quantitative easing policies in advanced economies on exchange rate volatility in emerging markets. Using panel ARDL (Autoregressive Distributed Lag) model, an asymmetric effect is detected showing that increases in quantitative easing have a significant impact on exchange rate volatility, whereas subsequent tapering does not. Moreover, the Fragile Five economies experience spikes in exchange rate volatility that are more than double what is detected in other emerging markets. Finally, the impact of foreign exchange intervention to offset the effect on volatility is significant across emerging markets and is, once again, larger in the Fragile Five economies. The results are supported using panel VAR (Vector Autoregression) estimations.

Suggested Citation

  • Helena Glebocki Keefe & Sujata Saha, 2022. "Foreign Exchange and Global Monetary Shocks: The Asymmetric Effects of Advanced Economies’ Quantitative Easing on Exchange Rate Volatility in Emerging Markets," International Economic Journal, Taylor & Francis Journals, vol. 36(3), pages 339-361, July.
    • Handle: RePEc:taf:intecj:v:36:y:2022:i:3:p:339-361
    DOI: 10.1080/10168737.2022.2098353
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