- Central banks took unprecedented actions like quantitative easing to stabilize financial markets and inject liquidity during the 2007-2008 global financial crisis. - Quantitative easing involves central banks buying bonds and other assets to increase liquidity in the markets. - As economies improved, the US Federal Reserve began tapering or slowly reducing its quantitative easing program in 2013 to wind down the stimulus, which impacted emerging markets through capital outflows, currency declines, and increased borrowing costs.

1. QE & Tapering
By
Kumar T
Vaibhav
Sandeep
Vrinda

2. SUMMARY
• In response to the global financial crisis and recession
that began in 2007, the major central banks in a number
of advanced economies took unprecedented effort to
stabilize and inject liquidity into financial markets.
• Central bank action was aimed at preventing a
catastrophic failure of the financial system.
• Tools (Conventional, unconventional)

3. What is the Fed?
• Central bank of the United
States
• Established in 1913
• Purpose is to ensure a
stable economy for the
nation
• Roles and responsibility

4. Monetary Policy & Its goals
• Policy changes
affect the nation’s
supply of money
and credit.
• Actions have real
short- and long-
term effects on the
economy.
Stable Prices
Sustainable
Economic
Growth
Full
Employmen
t

5. Quantitative Easing
• A monetary policy of central
banks that entails buying bonds
and other assets in order to inject
liquidity to the market.
• Process:
– The central bank electronically gives
itself a set amount in its own
account.
– Buys bonds and other assets from
commercial or investment banks

6. QE Process

9. Capital inflows to EM’s

12. Tapering
• Fed will begin to wind down
the size of asset purchase
program
• At present , QE is fluid and
subject to change based on
economic conditions.
• This was illustrated By then
fed chairman Ben Bernanke
on may 22,2013

13. Tapering
• On Dec 18, 2013 the Fed announced the first
tapering: beginning January, it will reduce its
purchases from 85 to 75 billion $
• Fed is on track to reduce the program steadily
throughout 2014 as long as economic growth
and unemployment remains on track

14. Why is FED tapering
• Better than expected job growth
• They’re not ending QE, they’re
just reducing it
• Tapering isn’t an
immediate, dramatic event
• It is likely to take place gradually
throughout 2014 so as to create
minimal market disruption (i.e
Depends on economic condition
of US)

15. Impact on Emerging World
• Bond yields goes up
• Exchange rate plunge
• Forex Reserves depletion

17. Emerging Market Nightmares FED interest rate raises
• Capital outflow
• Growth hit hard
• High rate low growth Impact their
balancesheet

19. EM’s currency fluctuation

20. Thank you