Quantitative Easing spillovers on emerging economies: common traits and sources of heterogeneity

The international effects of Quantitative Easing have increasingly attracted the attention of policymakers in recent years. Still, the transmission of asset purchases shocks to emerging economies is not yet fully understood. In this study, I use data on unconventional monetary policies undertaken in the last decade by four large economies (US, UK, Euro Area and Japan) to assess the spillovers on nineteen major developing countries. In line with previous literature, I find significant reactions of financial variables. After an external QE shock, emerging economies experience a stock market boom, a strong real exchange rate appreciation and a decline in long term interest rate and CDS premia. I also find some evidence of an increase in net received capital flows. However, the effects on real domestic variables are more ambiguous, with only moderate evidence of an increase in economic activity and a fall in the unemployment rate. Despite eased financial conditions, CPI slightly decreases, and there is evidence that deflationary pressures are associated with episodes of larger currency appreciation. Overall, the average effects on real economic variables are very small, and heterogeneity prevails, driven among the rest by the exchange rate regime, trade openness and financialization.