Fed's Policy Changes and Inflation in Emerging Markets: Lessons from the Taper Tantrum

Antonia López‐villavicencio and Marc Pourroy
Authors registered in the RePEc Author Service: Antonia López Villavicencio

Journal of Money, Credit and Banking, 2022, vol. 54, issue 4, 1099-1121

Abstract: We use the taper tantrum to measure the effects of a sudden depreciation of the exchange rate. We treat this announcement in the United States of America as an exogenous shock in emerging markets and use a difference‐in‐differences approach. We show that, before the tantrum, the impact of exchange rate changes on inflation is low in both the control and the treatment groups. However, the tantrum increased the gap between groups and impacted inflation regardless of the exchange rate regime or central bank practices. Nevertheless, inflation in economies with flexible exchange rate, inflation target, or highly credible central bank is less exposed to depreciations.

Date: 2022
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https://doi.org/10.1111/jmcb.12803

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Working Paper: Fed's Policy Changes and Inflation in Emerging Markets: Lessons from the Taper Tantrum (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:54:y:2022:i:4:p:1099-1121

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