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

Author

Listed:
  • Can Sever
  • Rohit Goel
  • Dimitris Drakopoulos
  • Mr. Evan Papageorgiou

Abstract

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.

Suggested Citation

  • Can Sever & Rohit Goel & Dimitris Drakopoulos & Mr. Evan Papageorgiou, 2020. "Effects of Emerging Market Asset Purchase Program Announcements on Financial Markets During the COVID-19 Pandemic," IMF Working Papers 2020/292, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2020/292
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    Citations

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    Cited by:

    1. Daan Steenkamp & Henk Janse van Vuuren & Rossouw van Jaarsveld & Roy Havemann, 2022. "The bond market impact of the South African Reserve Bank bond purchase programme," Working Papers 876, Economic Research Southern Africa.
    2. Aizenman, Joshua & Ito, Hiro & Pasricha, Gurnain Kaur, 2022. "Central bank swap arrangements in the COVID-19 crisis," Journal of International Money and Finance, Elsevier, vol. 122(C).
    3. Mathur, Aakriti & Sengupta, Rajeswari & Pratap, Bhanu, 2024. "Equity market responses to surprise Covid-19 lockdowns: The role of pandemic-driven uncertainty," Journal of Asian Economics, Elsevier, vol. 91(C).
    4. Beirne, John & Sugandi, Eric, 2023. "Central bank asset purchase programs in emerging market economies," Finance Research Letters, Elsevier, vol. 54(C).
    5. Aakriti Mathur & Rajeswari Sengupta & Bhanu Pratap, 2022. "Saved by the bell? Equity market responses to surprise Covid-19 lockdowns and central bank interventions," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2022-001, Indira Gandhi Institute of Development Research, Mumbai, India.
    6. Grabowski, Wojciech & Janus, Jakub & Stawasz-Grabowska, Ewa, 2023. "The COVID-19 pandemic and financial markets in Central Europe: Macroeconomic measures and international policy spillovers," Emerging Markets Review, Elsevier, vol. 54(C).
    7. Rhea Choudhary, 2022. "Analysing the spillover effects of the South African Reserve Banks bond purchase programme," Working Papers 11025, South African Reserve Bank.
    8. Ivan Mužić & Ivan Gržeta, 2022. "Expectations of Macroeconomic News Announcements: Bitcoin vs. Traditional Assets," Risks, MDPI, vol. 10(6), pages 1-15, June.
    9. Rhea Choudhary, 2022. "AnalysingthespillovereffectsoftheSouthAfricanReserveBanksbondpurchaseprogramme," Working Papers 11039, South African Reserve Bank.

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