The Impact of Reducing Quantitative Easing Program on Emerging Market

Abstract

In this study, the effect of the official statements that Fed will reduce its monthly asset purchases from $ 85 billion to $ 75 billion on June 19, 2013 under the third quantitative easing (QE3) program on the currencies of emerging markets is being examined by the event study approach. In this context, daily nominal exchange rate data are used for the period of 01.09.2012 - 07.04.2014 for selected countries belonging to emerging markets namely Brazil, India, Hungary, Mexico, South Africa, Philippines, Russia, Thailand and Turkey. Result of the analysis shows that a statistically significant change was detected between pre-event and post-event sample averages in all countries except Hungary. Accordingly, the Fed’s announcements of reducing asset purchases has generally resulted in a depreciation of the currencies of investigated emerging markets.