The Transmission of Federal Reserve Tapering News to Emerging Financial Markets

Joshua Aizenman, Mahir Binici and Michael M. Hutchison
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Michael M. Hutchison: University of California, Santa Cruz

International Journal of Central Banking, 2016, vol. 12, issue 2, 317-356

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.

JEL-codes: F3 F36 G14 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (68)

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Related works:
Working Paper: The Transmission of Federal Reserve Tapering News to Emerging Financial Markets (2014)
Working Paper: The Transmission of Federal Reserve Tapering News to Emerging Financial Markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2016:q:2:a:7

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