Impact of US quantitative easing on Asian assets markets

Abstract

This paper studies the effects of the Federal Reserve’s Quantitative Easing (QE) program on emerging Asian economies by examining capital flows and asset prices. Following this monetary expansion in the US, a lot of cheap money flowed into emerging economies putting upward pressure on exchange rates and also asset prices. The money flowed into the emerging countries and either leads to an appreciation of exchange rate unless the central bank intervenes to maintain the exchange rate. In case the central bank accumulates reserves, the monetary base expands leading to an overall appreciation of asset prices in the economy. This positive impact on the asset prices is reflected in the appreciation of prices of either real assets (housing prices) or financial assets (stock indices) or both. The allocation of the impact of the increased flows depends on many factors specific to the countries under consideration including the monetary policy of the countries. These effects are studied in this paper through a preliminary analysis of understanding pattern of changes and later a quantitative approach is adopted where the three dependent variables – Exchange Rates, Stock Prices and Asset Prices are regressed with the QE phases along with controlling other variables that might be impacting to understand what were the impact of different QE phases.