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

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Listed:
  • Joshua Aizenman
  • Donghyun Park
  • Irfan A. Qureshi
  • Jamel Saadaoui
  • Gazi Salah Uddin

Abstract

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.

Suggested Citation

  • Joshua Aizenman & Donghyun Park & Irfan A. Qureshi & Jamel Saadaoui & Gazi Salah Uddin, 2024. "The performance of emerging markets during the Fed’s easing and tightening cycles: a cross-country resilience analysis," Working Papers of BETA 2024-26, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2024-26
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    File URL: http://beta.u-strasbg.fr/WP/2024/2024-26.pdf
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    More about this item

    Keywords

    Monetary policy cycle; emerging market; resilience; macroeconomic fundamentals; Federal Reserve.;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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