Effects of Emerging Market Asset Purchase Program Announcements on Financial Markets During the COVID-19 Pandemic

By Can Sever, Rohit Goel, Dimitris Drakopoulos, Evan Papageorgiou

December 18, 2020

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Format: Chicago

Can Sever, Rohit Goel, Dimitris Drakopoulos, and Evan Papageorgiou. Effects of Emerging Market Asset Purchase Program Announcements on Financial Markets During the COVID-19 Pandemic, (USA: International Monetary Fund, 2020) accessed December 26, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The COVID-19 pandemic led many emerging market central banks to adopt, for the first time, unconventional policies in the form of asset purchase programs. In this study, we analyze the effects of these announcements on domestic financial markets using both event studies and local projections methodology. We find that these asset purchase announcements lowered bond yields, did not lead to a depreciation of domestic currencies, and did not have much effect on equities. While the immediate effect of asset purchases appears positive, further consideration of the risks and longer-term effects of unconventional monetary policies is needed. We highlight the trade-offs involved with the implementation of these measures, and discuss their risks. This working paper adds to the debate on how asset purchase programs should be a regular part of the emerging market policy toolkit.

Subject: Bond yields, Central bank policy rate, Currencies, Stock markets, Yield curve

Keywords: Asset purchase, Asset purchase program, Bonds, Central banks, COVID-19, EM currency, EM equity, Emerging markets., Equities, Foreign exchange, Market dynamics, Market volatility, Pandemic, Policy announcement, Policy spillover, QE announcement, Quantitative easing, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/292
Stock No:

WPIEA2020292
ISBN:

9781513564661
ISSN:

1018-5941

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