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Central bank bond purchases in emerging market economies

Author

Listed:
  • Yavuz Arslan
  • Mathias Drehmann
  • Boris Hofmann

Abstract

In response to the Covid-19 shock, many central banks in emerging market economies have launched local currency bond purchase programmes to address bond market dislocations, signalling that they were willing to take the role of a buyer of last resort. Local currency bond yields fell significantly following the programme announcements, with little effect on exchange rates. These positive initial market reactions suggest that the programmes were successful in restoring investor confidence and did not lead to higher inflation expectations, eg due to perceived risks of fiscal dominance. Market reactions varied between countries, depending on initial conditions in each jurisdiction as well as on the scope, scale and communication of the bond purchase programmes.

Suggested Citation

  • Yavuz Arslan & Mathias Drehmann & Boris Hofmann, 2020. "Central bank bond purchases in emerging market economies," BIS Bulletins 20, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:20
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    References listed on IDEAS

    as
    1. Bank for International Settlements, 2010. "The global crisis and financial intermediation in emerging market economies," BIS Papers, Bank for International Settlements, number 54, May.
    2. Ratna Sahay & Vivek B. Arora & Athanasios V Arvanitis & Hamid Faruqee & Papa M N'Diaye & Tommaso Mancini Griffoli, 2014. "Emerging Market Volatility; Lessons from The Taper Tantrum," IMF Staff Discussion Notes 14/9, International Monetary Fund.
    3. Boris Hofmann & Ilhyock Shim & Hyun Song Shin, 2020. "Emerging market economy exchange rates and local currency bond markets amid the Covid-19 pandemic," BIS Bulletins 5, Bank for International Settlements.
    4. Ms. Ratna Sahay & Mr. Vivek Arora & Mr. Athanasios V Arvanitis & Mr. Hamid Faruqee & Mr. Papa M N'Diaye & Mr. Tommaso Mancini-Griffoli, 2014. "Emerging Market Volatility: Lessons from The Taper Tantrum," IMF Staff Discussion Notes 2014/009, International Monetary Fund.
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