International Monetary Fund, 2014, India 2014 Article IV Staff Report, IMF Country Report 14/57 (Washington: International Monetary Fund).
Sahay, R., V. Arora, T. Arvanitis, H. Faruqee, P. N’Diaye, T. Mancini-Griffoli, and an IMF Team, 2014, Emerging Market Volatility: Lessons from The Taper Tantrum, Staff Discussion Note SDN/14/09 (Washington: International Monetary Fund).
Prepared by Ran Bi.
See Annex IV of the 2014 India Article IV Staff Report (IMF Country Report 14/57) for a detailed discussion of major EMs’ earlier policy responses to the taper talk.
These EMs were largest hit by markets during May–August 2013—that is, their exchange market pressure index (a combination of changes in exchange rates and reserves) exceeds one standard deviation in at least one of those months.
The results of the event study should be interpreted with caution. For many policy announcements, the impact on asset prices is ambiguous or even counter-intuitive—this does not necessarily mean that the policy action is ineffective. Market reactions are driven by many underlying factors and are particularly complicated in an episode with high market volatility and numerous policy actions both domestic and abroad. Although the use of a very short time window for the event study limits the impact of non-domestic policy-related factors, it cannot eliminate such an impact.