E§ects of US Quantitative Easing on Emerging Market Economies∗

This paper estimates international spillover e§ects of US Quantitative Easing (QE) on emerging market economies. Using a Bayesian VAR on monthly US macroeconomic and financial data, we first identify the US QE shock with non-recursive identifying restrictions. This identified shock is then used in another Bayesian panel VAR for emerging market economies to infer the international spillover e§ects on these countries. We find that an expansionary US QE shock has significant e§ects on financial variables in emerging market economies. It leads to an exchange rate appreciation, a reduction in long-term bond yields, a stock market boom, and an increase in capital flows to these countries. These e§ects on financial variables are stronger for the “Fragile Five” countries compared to other emerging market economies. We do not find significant e§ects of the US QE shock on other macroeconomic variables of emerging market countries such as output and consumer prices.