IMF Economic Review

, Volume 66, Issue 4, pp 732–762 | Cite as

Effects of Fed Announcements on Emerging Markets: What Determines Financial Market Reactions?

  • Prachi Mishra
  • Papa N’Diaye
  • Lam NguyenEmail author
Research Article


This paper analyzes market reactions to the 2013–2014 Fed announcements related to the tapering of asset purchases and examines how these reactions are influenced by financial depth. The study focuses on long-term government bond yields and uses daily data for all emerging markets. Controlling for all time-invariant country characteristics as well as time-varying macroeconomic fundamentals (changes in current account, fiscal balance, GDP growth, and inflation), countries with deeper domestic financial markets (as measured by higher bank credit, M2, M3, or stock market capitalization) experienced smaller increases in government bond yields during 4-day windows around Federal Open Market Committee announcements related to tapering. Countries with better macroeconomic fundamentals (measured by improvements in current account, fiscal balance, and GDP growth) also experienced smaller increases in government bond yields around such episodes.

JEL Classification

E44 F3 G14 



This paper has benefited from helpful comments from the editor, two anonymous referees, and discussions with participants at the IMF Research Brown Bag, Monetary and Capital Markets Policy Forum, Thanos Arvanitis, Stijn Claessens, Rakesh Mohan, Jim Morsink, Chris Papageorgiou, Ratna Sahay, and Andrei Zlate. The authors wish to thank Diana Ayala Pena and Gao Yuan Rollinson for excellent research assistance. We would also like to thank Kenji Moriyama for sharing the data on “excess” capital flows. The authors bear all responsibility for errors and omissions.

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Copyright information

© International Monetary Fund 2018

Authors and Affiliations

  1. 1.Western Hemisphere DepartmentInternational Monetary FundWashingtonUSA
  2. 2.African DepartmentInternational Monetary FundWashingtonUSA
  3. 3.Department of EconomicsUniversity of CaliforniaSan DiegoUSA

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