The impact of unconventional monetary policy announcements on emerging market asset prices

Abstract

Advanced central banks have increased their balance sheets after the financial crisis which has raised concerns amongst market participants. However, there is no empirical evidence to provide guidance to on the optimal point of asset purchases. This paper examines spillover effects of unconventional monetary policy announcements from four advanced central banks on emerging market asset prices for the period 2009 to 2016. Vast amount of literature so far has focused on the spillover effects on advanced economies and mainly concentrates on announcements from the Federal Reserve. The research estimates the two day change on 15 emerging market economies’ asset prices. The results show that emerging market currencies exhibit higher returns against the Japanese Yen during the two day window period of the announcement being made. Bonds were more reactive to unconventional monetary policy than equities on days that announcements were made. Expectations of market participants were considered which showed that announcements made by the Bank of Japan (BOJ) were more anticipated by market participants which is an indication of how effective implementation of forward guidance has been over the years. The words and phrases used in making unconventional monetary policy announcements have had a significant effect on asset prices after the financial crisis.