Impact analysis of US quantitative easing policy on emerging markets

Joung-Yol Lin, Munkh-Ulzii John Batmunkh, Massoud Moslehpour, Chuang-Yuang Lin, Ka-Man Lei
  • International Journal of Emerging Markets, January 2018, Emerald
  • DOI: 10.1108/ijoem-03-2016-0082

What is it about?

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.

Why is it important?

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.

Perspectives

PhD Munkh-Ulzii John Batmunkh
National University of Mongolia

Overall, our findings show that the US QE policy impacts greatly on the monetary systems of the EMs. Consequently,monetary systems of those markets deliver aftershocks of the policy to their domestic financial institutions. In other words, findings of this study show that the US QE policy impacts on the economy of the EMs through their monetary systems. We find that the unconventional monetary policy induces the EMs to experience an economic spike in the short-run, however, it fails to be a sustainable basis for economic growth in the long-run.

Read Publication

http://dx.doi.org/10.1108/ijoem-03-2016-0082

The following have contributed to this page: PhD Munkh-Ulzii John Batmunkh and Dr Massoud Moslehpour