Abstract
Since the Bretton Woods Agreement, the U.S. dollar has played the role of dominant global currency. As a result, the Federal Reserve Bank has many privileges such as the ability to run trade deficits without foreign exchange reserves. In the world, foreign exchange rates of currencies are quoted against the dollar, and majority of currency trading involves the dollar. Besides, international trade in primary commodities, such as oil, wheat, gold and coffee are bought and sold in U.S. dollar. The central banks of countries hold major positions of their international reserves in dollars. Any changes in its interest rates automatically alter the revenues of all world assets. With deregulated financial markets, the spillover effects of the Federal Reserve Bank’s decisions have increased. In this paper, we examine the impacts of Federal Reserve Bank policies over the Fragile Five that is a sub group of the weaker emerging markets namely Brazil, India, Indonesia, South Africa and Turkey. We are mainly focusing on the consequences of changes in Fed’s policies on the fragile five’s basic indicators; exchange rate, interest rate, and the stock exchange indices. All Fragile Five currencies have been depreciated by about 10 to 25% after the Fed tapering decisions. In addition we test for mean and volatility spillover of Wall Street on stock exchange indices of the Fragile Five in GARCH in mean framework and document the existence of such spillovers in almost all cases.
Keywords
- Global Financial Crisis Search this journal for Global Financial Crisis (opens in a new tab)
- Tapering Search this journal for Tapering (opens in a new tab)
- Fragile Five Search this journal for Fragile Five (opens in a new tab)
- Quantitative Easing Search this journal for Quantitative Easing (opens in a new tab)
- Emerging Economies Search this journal for Emerging Economies (opens in a new tab)
- FED Search this journal for FED (opens in a new tab)
- GARCH in Mean Search this journal for GARCH in Mean (opens in a new tab)
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Copyright (c) 2014 Mehmet ORHAN, Zehra Vildan SERIN, Halil İbrahim ÇELİKEL (Author)
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Keywords
- Global Financial Crisis Search this journal for Global Financial Crisis (opens in a new tab)
- Tapering Search this journal for Tapering (opens in a new tab)
- Fragile Five Search this journal for Fragile Five (opens in a new tab)
- Quantitative Easing Search this journal for Quantitative Easing (opens in a new tab)
- Emerging Economies Search this journal for Emerging Economies (opens in a new tab)
- FED Search this journal for FED (opens in a new tab)
- GARCH in Mean Search this journal for GARCH in Mean (opens in a new tab)
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Vol. 6 No. 12 (2014)
E-Commerce, Monetary Policy & Inclusive Development
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