Quantitative easing in US: Impact on emerging economies

Abstract

In this document, we have studied the latest recession in USA which began significant post LehmanBrother’s bankruptcy in September 2008. The actions taken to overcome this recession were radical. TheFederal Reserve Bank of USA (Fed) resorted to two rounds of Quantitative Easing (QE1 and QE2). Thesemeasures resulted in large amount of money getting generated in the US economy. As a result, thissurplus money found its way into the emerging economies which were home to both high interest ratesand high growth.Soon signs of inflation appeared in the emerging economies and the central banks in these economiesresorted to different measures to tackle it. We have studied the effects of quantitative easing in fourdifferent emerging economies – Brazil, China, India and South Africa. However, actions of only threemajor central banks – People Bank of China (PCB), Reserve Bank of India (RBI) and Banco Central doBrasil (BCB) are studied in details.The central banks in emerging economies were always blaming Fed Policies for all the problems. Theseproblems are inflation, asset bubbles and exchange rate appreciations. We have made an attempt todiagnose what was the root cause for problems and if Fed policies are to be blamed. So, we analyzedwhether the inflows generated by Fed actions or artificially managed (controlled) low yields in USA werereally creating problems elsewhere.This document also provides an insight into how various macroeconomic factors like money supply,interest rates, GDP etc performed not only during different rounds of quantitative easing but also justbefore and after.