U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies

We empirically investigate the effects of US unconventional monetary policy (UMP) on Korean bond markets using a high‐frequency event‐study approach. We find that: (1) Not every instance of UMP‐related news affects the domestic bond yields at daily frequency; (2) UMP news affects only short‐term foreign bond investment with high‐frequency arbitrage opportunities; (3) Factor analysis suggests that net foreign bond investment is affected more by expectation on future US short‐term policy rates compared to long‐term risk premia in the US Treasury market; and (4) Credit default swap premium for South Korea, proxi of local risk factor, also affects net foreign bond investment. Based on our empirical findings, we conclude that, while push factors do not dominate pull factors, the Korean bond market is not a “safe haven” from the normalization of US monetary policy and regulators should examine closely the share and composition of foreign bond investment.

Section: Literature Reviewmentioning

confidence: 99%

Section: Dates Of Ump-related Newsmentioning

confidence: 99%

Spillover Effects of United States’ Unconventional Monetary Policy on Korean Bond Markets: Evidence from High‐Frequency Data

Park

Um²

2016

“…For example, Eichengreen and Gupta (2014) analyze the effects of "tapering talk" on the macroeconomic variables of emerging markets. Bowman, Londono, and Sapriza (2014) explore how the FRB's unconventional monetary policy affected the emerging market economies' asset prices as well as their capital flows. Lim, Mohapatra, and Stocker (2014) focus mostly on the effects of the unconventional monetary policies of high-income economies on the financial inflows to developing economies, and simulate the effect of monetary policy normalization.…”

Section: A Objectives Of Analysismentioning

confidence: 99%

Effects of Quantitative Easing Monetary Policy Exit Strategy on East Asian Currencies

Ogawa

Zhi-qian

2016

With the end of the Federal Reserve Board's quantitative easing monetary policy, it is expected that the federal funds rate will be raised from almost 0% in the near future. We investigate the effects of changes in monetary policy, especially the effects of raising interest rates in the United States on East Asian currencies. Specifically, we use data on interest rates as a monetary policy instrument to investigate how changes in the US interest rates affect interest rates, exchange rates, and capital flows in East Asian emerging market economies. The analytical results suggest that East Asian countries would face capital outflows that depreciate their home currencies, with upward pressure against their own interest rates when the Federal Reserve Board raises the interest rate.

“…Among unconventional policies in advanced countries, a number of studies suggested that a highly accommodative monetary policy in the United States has created major challenges for policymakers in the rest of the world, especially in emerging market economies (EMEs) (see, for example, Fratzscher, Lo Duca, and Straub [2013]; Chen, Mancini-Griffoli, and Sahay [2014]; Bowman, Londono, and Sapriza [2014]; Neely [2015]). Quite a few EMEs experienced rapid capital inflows and strong currency-appreciation pressures during 2010-12 while they saw a sharp reversal in episodes of market volatility after the Federal Reserve Board's (FRB) Chairman Bernanke's tapering comments on May 22, 2013.…”

Section: Introductionmentioning

confidence: 99%

Unconventional Monetary Policy and its External Effects: Evidence from Japan's Exports

Fukuda

Doita

2016

After Prime Minister Abe advocated a new policy regime, the Japanese yen depreciated substantially, yet Japan's exports did not show significant improvement. To explain this, the paper focuses on external demand and overseas production. Our model shows that a small change in the exchange rate has no effect on exports because of the fixed costs associated with shifting the plant location to other countries. It also implies that a change in the exchange rate has a significant effect on exports either when depreciation coincides with strong external demand or when appreciation coincides with weak external demand. We examine the validity of these theoretical implications through estimating a simple export function in Japan and calibrating our export function. Both of the experiments confirm that the model can track Japan's exports reasonably well, especially after the new policy regime started.