The transmission of federal reserve tapering news to emerging financial markets

Joshua Aizenman, Mahir Binici, Michael M. Hutchison

Research output: Contribution to journalArticlepeer-review

37 Scopus citations

Abstract

This paper evaluates the impact of tapering “news” announcements by Federal Reserve senior policymakers on financial markets in emerging economies. We apply a panel framework using daily data, and find that emerging-market asset prices respond most to statements by Federal Reserve Chairman Bernanke, and much less to other Federal Reserve officials. We group emerging markets into those with “robust” fundamentals (current account surpluses, high international reserves, and low external debt) and those with “fragile” fundamentals and, intriguingly, find that the exchange rates of the robust group (and, to a lesser extent, equity prices and CDS spreads) were more adversely affected by tapering news than the fragile group. The cumulative effects of tapering announcements after a month, however, appear to be quite similar for both robust and fragile emerging markets. We also show that more financially developed economies are more affected by tapering news, and a plausible interpretation is that more financially developed economies are more exposed, at least in the short term, to external news announcements.

Original languageEnglish
Pages (from-to)317-356
Number of pages40
JournalInternational Journal of Central Banking
Volume12
Issue number2
StatePublished - 1 Jun 2016
Externally publishedYes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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