Advanced-country policies and emerging-market currencies: the impact of U.S. tapering on India's Rupee

Yuki Ikeda (), Denis Medvedev and Martin Rama

No 7219, Policy Research Working Paper Series from The World Bank

Abstract: The global financial crisis and its aftermath have triggered extraordinary policy responses in advanced countries. The impacts of these policy responses?from asset price bubbles to currency depreciations?have often been felt in the developing world. As tapering talk evolves into actual withdrawal of quantitative easing in the United States, and as the Euro Zone launches its own quantitative easing program, there are good reasons to be concerned about the financial stability of emerging economies. India's experience with U.S. tapering offers insights into what to expect. This paper estimates the contribution of external and domestic factors to short-term fluctuations in the value of the Indian rupee between 2004 and 2014, using a rich dynamic model that controls for a large number of exchange rate determinants. The paper finds that a global surprise factor, more than domestic vulnerabilities, was the main driver of the large rupee depreciation in summer 2013. With the surprise factor gone, further normalization of U.S. monetary policy is unlikely to have significant effects on the rupee exchange rate.

Keywords: Economic Theory&Research; Debt Markets; Currencies and Exchange Rates; Economic Stabilization; Emerging Markets (search for similar items in EconPapers)
Date: 2015-03-23
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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Journal Article: Advanced‐country policies and emerging‐market currencies: The impact of US tapering on India's rupee (2019)
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