| Abstract: |
This paper evaluates the impact of tapering “news” announcements by Fed senior
policy makers 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 Fed Chairman Bernanke, and much less to other Fed
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
stronger group was more adversely exposed to tapering news than the weaker
group. News of tapering coming from Chairman Bernanke is associated with much
larger exchange rate depreciation, drops in the stock market, and increases in
sovereign CDS spreads of the robust group compared with the fragile group. A
possible interpretation is that tapering news had less impact on countries
that received fewer inflows of funds in the first instance during the
quantitative years and had less to lose in terms of repatriation of capital
and reversal of carry-trade activities. |