Taper Tantrums: QE, its Aftermath and Emerging Market Capital Flows

Anusha Chari, Karlye Dilts Stedman and Christian Lundblad

No 23474, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides a novel perspective on the impact of U.S. unconventional monetary policy (UMP) on emerging market capital flows and asset prices. Using high-frequency Treasury futures data to identify U.S. monetary policy shocks, we find, through the lens of an affine term structure model, that these shocks represent revisions to both the expected path of short-term interest rates and required risk compensation. The risk compensation component is especially important during the UMP periods. Further, we find that these high-frequency policy shocks do exhibit sizable effects on U.S. holdings of emerging market assets and their valuations. We also document that the relative effects of U.S. monetary policy shocks are larger for emerging asset returns relative to physical capital flows, and they are largest for emerging equity markets relative to fixed income markets. Last, these effects are largest when the Federal Reserve is engaged in “tapering” its large-scale asset purchase program.

JEL-codes: E5 E52 E58 E65 F3 F32 F42 G11 G12 G13 (search for similar items in EconPapers)
Date: 2017-06
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
Note: AP IFM ME
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Citations: View citations in EconPapers (47)

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