Research Highlight

Effects of US quantitative easing on emerging market economies

We estimate international spillover effects of US Quantitative Easing (QE) on emerging market economies (EMEs). Using a Bayesian panel VAR we find that an expansionary US QE shock has significant effects on financial variables in EMEs. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital inflows to these countries. These effects on financial variables are stronger for the “Fragile Five” countries compared to other EMEs, which we relate to their weak ex-ante fundamentals.
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