Eichengreen, BarryGupta, Poonam2014-02-032014-02-032014-01https://hdl.handle.net/10986/16826In May 2013, Federal Reserve officials first began to talk of the possibility of tapering their security purchases. This tapering talk had a sharp negative impact on emerging markets. Different countries, however, were affected very differently. This paper uses data on exchange rates, foreign reserves and equity prices between April and August 2013 to analyze who was hit and why. It finds that emerging markets that allowed the real exchange rate to appreciate and the current account deficit to widen during the prior period of quantitative easing saw the sharpest impact. Better fundamentals (the budget deficit, the public debt, the level of reserves, or the rate of economic growth) did not provide insulation. A more important determinant of the differential impact was the size of the country's financial market: countries with larger markets experienced more pressure on the exchange rate, foreign reserves, and equity prices. This is interpreted as showing that investors are better able to rebalance their portfolios when the target country has a relatively large and liquid financial market.en-USCC BY 3.0 IGOASSET PRICESASSETSBANK LENDINGBASIS POINTSBOND SPREADBOND SPREADSBOND YIELDSBUDGET DEFICITBUDGET DEFICITSBUSINESS ENVIRONMENTCAPITAL ACCOUNTCAPITAL ACCOUNT OPENNESSCAPITAL ACCOUNT TRANSACTIONSCAPITAL CONTROLCAPITAL CONTROLSCAPITAL FLOWSCAPITAL MARKETCDSCENTRAL BANKCHECKSCLOSED CAPITAL ACCOUNTCOMPETITIVENESSCONSUMER PRICE INDEXCONTROL VARIABLECORRELATION COEFFICIENTSCREDIT DEFAULTCREDIT DEFAULT SWAPCREDIT DEFAULT SWAPSCURRENCYCURRENCY DEPRECIATIONCURRENT ACCOUNTCURRENT ACCOUNT BALANCECURRENT ACCOUNT DEFICITCURRENT ACCOUNT DEFICITSCURRENT ACCOUNT TRANSACTIONSCURRENT ACCOUNTSCURRENT DEFICITDE FACTO EXCHANGE RATE REGIMEDEBTSDEPENDENT VARIABLEDEPRECIATIONSDEVELOPMENT ECONOMICSDEVELOPMENT POLICYECONOMIC GROWTHECONOMIC OUTLOOKECONOMIC PERFORMANCEECONOMIC POLICYEMERGING COUNTRIESEMERGING MARKETEMERGING MARKETSEQUITIESEQUITY PRICEEQUITY PRICESEXCHANGE ARRANGEMENTSEXCHANGE DEPRECIATIONEXCHANGE MARKETEXCHANGE RATE DATAEXCHANGE RATE DEPRECIATIONEXCHANGE RATE REGIMEEXCHANGE RATESEXCHANGE RESTRICTIONSEXPLANATORY VARIABLESEXTERNAL DEBTEXTERNAL FINANCEEXTERNAL FINANCINGEXTERNAL PRESSURESFEDERAL RESERVEFEDERAL RESERVE SYSTEMFINANCIAL INFLOWSFINANCIAL MARKETFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL SECTORFINANCIAL SHOCKSFINANCIAL SYSTEMSFISCAL DEFICITFISCAL POLICYFOREIGN ASSETSFOREIGN CAPITALFOREIGN INVESTORSFOREIGN RESERVESGDPGLOBAL FINANCIAL STABILITYGOVERNANCE INDICATORGOVERNANCE INDICATORSGOVERNMENT BONDGOVERNMENT BOND MARKETSGROWTH RATEGROWTH RATESIMPORTSINFLATIONINFLATION INDEXINFLATION RATEINTEREST RATEINTEREST RATE SPREADSINTEREST RATESINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL STATISTICSLIABILITYLIQUID MARKETLIQUIDITYLOANLOCAL CURRENCYLOCAL MARKETLOCAL MARKETSM2MACROECONOMIC CONDITIONSMARKET CONDITIONSMARKET PRESSUREMARKET SIZEMARKET STOCKMARKET STRUCTUREMARKET YIELDSMONETARY FUNDMONETARY POLICYMORTGAGEMORTGAGE MARKETMULTIPLE EXCHANGE RATESNOMINAL DEPRECIATIONNOMINAL EXCHANGE RATEOPEN CAPITAL ACCOUNTPERCEIVED VULNERABILITYPOLICY ANALYSISPOLICY RESEARCHPORTFOLIOPORTFOLIO LIABILITIESPORTFOLIO LIABILITYPORTFOLIOSPRIVATE CAPITALPRIVATE CAPITAL INFLOWSPRIVATE FINANCINGPRIVATE INFLOWSPUBLIC DEBTRATE OF DEPRECIATIONRATE OF GROWTHREAL APPRECIATIONREAL EFFECTIVE EXCHANGE RATESREAL EXCHANGEREAL EXCHANGE RATEREAL EXCHANGE RATE APPRECIATIONREAL EXCHANGE RATESREAL GDPREGRESSION ANALYSISRESERVE BANKRESERVESROBUSTNESS CHECKSSECURITIESSHORT TERM DEBTSOVEREIGN BONDSOVEREIGN BONDSSPECULATIVE ATTACKSSTANDARD DEVIATIONSTANDARD DEVIATIONSSTOCK EXCHANGESTOCK INDEXSTOCK INDICESSTOCK MARKETSTOCK MARKET CAPITALIZATIONSTOCK MARKET DECLINESTOCK MARKET DECLINESSTOCK MARKET INDEXSTOCK MARKET INDICESSTOCK MARKETSSTOCK PRICESTOCK PRICESSTOCKSTOTAL EXTERNAL DEBTTOTAL RESERVESTREASURIESUPWARD PRESSUREWEALTHWEIGHTSWORLD DEVELOPMENT INDICATORSWorld Bank10.1596/1813-9450-6754