Impact analysis of US quantitative easing policy on emerging markets

Abstract

Purpose Since the 2008 financial crisis, the USA has three times implemented quantitative easing (QE) policy. The results of the policy, however, were far below all expectations. Furthermore, it flooded emerging markets (EMs) with low-priced dollars. The purpose of this paper is to investigate the overall and individual impacts of the policy on EMs. Design/methodology/approach This study uses panel data regression model together with the fixed effects model. Also, a unit root test is conducted to check stationary properties of the data, as well as Durbin-Watson statistic to check serial correlation issues in the models. In estimating empirical models, this paper employs macroeconomic data set of stock market returns, exchange rates, lending interest rates, consumer price index, monetary aggregates and foreign exchange reserves from seven diversified emerging economies. The EMs in this study include China, Indonesia, Singapore, Hong Kong, Taiwan, Russia and Brazil. The time period undertaken in this study is from 2008 to 2012. In order to measure impacts of the different stages of the policy, the authors use dummy variables to represent each stage of the policy. Findings The results of the study show that the QE policy has significant impacts on foreign exchange reserves, foreign exchange markets and stock markets of the sample economies. Domestic credit markets, however, appear to be least influenced field by the policy. Finally, the results show that only the first stage of the policy exhibits strong significant impacts, however, leverage of the policy decreases over time. Research limitations/implications Further studies may use different samples, also variables that measure foreign capital inflows such as changes in financial accounts, foreign direct investment and foreign portfolio investment. Originality/value The present study has the following contributions on assessing the impacts of QE policy. First, the overall and individual impacts of the policy are analyzed. Second, in order to establish more valid results, the sample of this study is designed to include several EMs from three continents and diverse regions.

Monetary spillovers and real exchange rate misalignments in emerging markets

“…Since our data includes both CMP and UMP phases, our paper relates to this strand of the literature. In this regard, Lin et al (2017) have studied the differential impact of the various phases of QE on EME macroeconomic variables (e.g. spot exchange rate, foreign exchange reserves, domestic credit, inflation etc.)…”

“…The resulting fall in long term bond yields in the AEs, made investors rebalance their portfolios towards EME assets in search of better returns. Capital inflows to EMEs surged during the UMP period (Chen et al, 2014;Lin et al, 2017). Alongside fall in bond yields, EME currencies were also impacted.…”

“…Studies like Chen et al (2014), Lim et al (2014), Ahmed and Zlate (2014) found increased capital flows to EMEs. Impact on stock markets in EMEs have also been explored (Lin et al, 2017;Chebbi, 2019). Another group of papers focussed on the impact of UMP in the "tapering" phase, and consequent doldrums in the EMEs (Aizenman et al, 2014;Mishra et al, 2014;Papadamou et al, 2019), with reverse depreciation and capital outflows.…”

Spillover Effects of US QE and QE Tapering on African and Middle Eastern Stock Indices

“…The literature on the impacts of unconventional monetary practices has been mainly focused on the values of assets, such as stock prices (Bowman et al 2015;Fratzscher et al 2017), exchange rates (Kenourgios et al 2015a(Kenourgios et al , 2015bLin et al 2017;MacDonald 2017), bond yields (D'Amico and King 2013; Bauer and Neely 2014;Papadamou et al 2018b), banks (Von Borstel et al 2016), and commodities (Papadamou and Sogiakas 2018). Moreover, a meta-analysis was recently conducted on the empirical findings on the macroeconomic effects of unconventional policies (Papadamou et al 2018a).…”

Central bank policies - πολιτικές στην κεντρική τραπεζική

“…There have also been studies about worldwide impacts of unconventional action taking. Lin et al (2018) use fixed-effects panel regressions and argue that US out of the ordinary policies exerted very strong effects on foreign exchange and equity markets in developing economies, especially during the beginning of non-conventional practices. Significant appreciations in the domestic currencies of China, Indonesia, Singapore, Hong Kong, Taiwan, Russia and Brazil are detected during the first stages of QE, whereas much lower effects on real economies are revealed in consequent rounds.…”