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on International Finance |
| By: | Barry Eichengreen (University of California, Berkeley); Poonam Gupta (National Council of Applied Economic Research); Rishabh Choudhary (An independent economist) |
| Abstract: | On November 3, 2021, the Federal Open Market Committee announced that it would reduce the scale of its asset purchases by $15 billion a month starting immediately. Do emerging markets, such as India, need to prepare for a replay of the taper tantrum of 2013? We show that emerging markets, including India, have strengthened their external economic and financial positions since 2013. At the same time, fiscal deficits are much wider, and public debts are much heavier. As U.S. interest rates now begin moving up, servicing existing debts and preventing the debt-to-GDP ratio from rising still further will become more challenging. Either taxes have to be raised or public spending must be cut to generate additional revenues for debt servicing. |
| Keywords: | Capital Flows, Emerging Markets, Monetary Policy, Tapering, India |
| JEL: | F32 F41 F42 F62 |
| Date: | 2021–11–03 |
| URL: | http://d.repec.org/n?u=RePEc:nca:ncaerw:131&r= |
| By: | Beirne, John (Asian Development Bank Institute); Renzhi, Nuobu (Asian Development Bank Institute); Volz, Ulrich (Asian Development Bank Institute) |
| Abstract: | We examine real and financial spillovers from monetary policy shocks originating in the United States (US) and the People’s Republic of China (PRC) to advanced and emerging economies in Asia over the period 2000 to 2020. Using a structural panel vector autoregression approach, we find that Asian economies overall are more susceptible to spillovers to GDP, inflation, and the current account emanating from monetary policy shocks in the PRC than to those from the US. This is related to high inter-regional trade integration in Asia and is in line with previous research findings. However, while the prevailing literature has highlighted the dominant role of US monetary policy as a transmitter of shocks to global and Asian financial markets, we find more persistence in the response of advanced Asian interest rates to PRC monetary policy shocks. In addition, emerging Asian economies are found to be more susceptible to shocks emanating from the PRC in respect of equity markets and exchange rates. The rising synchronization of Asian financial markets in relation to the PRC as the financial account in the PRC has gradually opened as well as indirect effects via trade and regional value chains help to rationalize our findings. |
| Keywords: | monetary policy; global financial cycle; international spillovers; US; People’s Republic of China |
| JEL: | E44 E52 F33 F42 |
| Date: | 2021–11 |
| URL: | http://d.repec.org/n?u=RePEc:ris:adbiwp:1288&r= |