The performance of emerging markets during the Fed’s easing and tightening cycles: A cross-country resilience analysis

We investigate the determinants of emerging markets performance during five U.S. Federal Reserve monetary tightening and easing cycles during 2004–2023. We study how macroeconomic and institutional conditions of an Emerging Market (EM) at the beginning of a cycle explain EM resilience during each cy...

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Bibliographic Details
Published inJournal of international money and finance Vol. 148; p. 103169
Main Authors Aizenman, Joshua, Park, Donghyun, Qureshi, Irfan A., Saadaoui, Jamel, Salah Uddin, Gazi
Format Journal Article
LanguageEnglish
Published Elsevier Ltd 01.10.2024
Subjects
Emerging market
Federal Reserve
Macroeconomic fundamentals
Monetary policy cycle
Resilience
F62
F31
Macroeconomic fundamentals
Federal Reserve
E58
Emerging market
Monetary policy cycle
Resilience
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Summary:We investigate the determinants of emerging markets performance during five U.S. Federal Reserve monetary tightening and easing cycles during 2004–2023. We study how macroeconomic and institutional conditions of an Emerging Market (EM) at the beginning of a cycle explain EM resilience during each cycle. More specifically, our baseline cross-sectional regressions examine how those conditions affect three measures of resilience, namely bilateral exchange rate against the USD, exchange rate market pressure, and country-specific Morgan Stanley Capital International index (MSCI). We then stack the five cross-sections to build a panel database to investigate potential asymmetry between tightening versus easing cycles. Our evidence indicates that macroeconomic and institutional variables are associated with EM performance, determinants of resilience differ during tightening versus easing cycles, and institutions matter more during difficult times. Our specific findings are largely consistent with economic intuition. For instance, we find that current account balance, international reserves, and inflation are all important determinants of EM resilience.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2024.103169